Coronavirus puts company match under pressure

For the employers that suspended or reduced their matches in defined contribution plans, the coronavirus — which caused the economic havoc leading to cost-cutting — also looms over their efforts to reinstate these benefits.

"If companies can bring back the match, they will," said Gregg Levinson, the Philadelphia-based senior director of retirement at Willis Towers Watson PLC.

However, a new survey by his firm, conducted during the first half of June, shows that bringing back the match could take a long time for many companies. Fifteen percent of the 543 companies surveyed said they have suspended or reduced their match and another 10% said they are considering action. Seven percent have suspended non-elective contributions and another 7% are considering it.

Among those planning to reinstate any of these benefits, 34% had no set date for acting but will reinstate "at some point."

Three percent said the change could be permanent and 1% said the change is permanent. Eleven percent were not sure.

Among those with more definite timetables, 16% said they would act sometime this year, 32% cited the first or second quarter of 2021 and 3% cited the second half of next year.

Three recent 11-K statements illustrate the variance in sponsors' forecasts about their matches. Hewlett-Packard Enterprise Co., San Jose, Calif., reported that it would suspend its match July 1 through Dec. 31 and then reinstate the match. Allegheny Technologies Inc., Pittsburgh, said it suspended the match June 1 for a 401(k) plan covering salaried employees, adding that "company contributions will be deferred until no later than Dec. 31, 2021." Herman Miller Inc., Zeeland, Mich., announced in April a series of cost-cutting measures "including immediately suspending the employer matching contributions and employer core contributions included in this plan until further notice."

DC experts say the impact of a missed match will be felt most among employees in certain industries — retail, travel, hospitality, airlines — but also by a large swath of other employees."Undersavers are the most affected," Mr. Levinson said.

Suspended matches "affect all," said Catherine Collinson, president and CEO of the Transamerica Institute and the Transamerica Center for Retirement Studies, Los Angeles. For example, there are baby boomers for whom "retirement is close on the horizon," she said. "Many are behind on their savings."

There's the Generation X group that also may not be saving enough due to multiple financial commitments, she said. Millennials, whose salaries are lower than other workers, can benefit from a match as an early boost to a financial foundation. For them, "compounding is important," she said.

Industry members said sponsors' communications about match changes are important so their decisions don't provoke fear among participants.

"If they say 'we don't want to have layoffs or furloughs'" as a reason for suspending the match, "people can buy into that," Mr. Levinson of Willis Towers Watson said. "If the company is highly leveraged, they won't buy into it."

A match suspension is "a lesson people should learn," he added. "There is a reason you need to take care of yourself and depend on yourself."

Ms. Collinson said employers should be as forthright as possible, explaining the reasons and "positioning this as temporary."

Suspending the match also is an opportunity to encourage participants to save," she said. "Even if it's a disappointing message, it's an excellent opportunity to engage participants in retirement planning."

Ms. Collinson also said it's important for companies to provide explanatory information to middle managers. Because employees "often go to their immediate manager" during a company crisis, "managers should have the information open a dialogue, which goes a long way to maintaining confidence."

One example of a sponsor's communications is Hewlett-Packard Enterprise Co., San Jose, Calif., which will suspend its match from July 1 through Dec. 31.

"We communicated the decision to temporarily suspend 401(k) matches along with several other short-term actions in an email memo to HPE team members from our CEO," wrote Katherine B. Ducker, a company spokeswoman, in an email response to questions. The company issued a video from its chief people officer that linked to a list of frequently asked questions.

"We also hosted a call for team members to provide context and answer questions," she added. "We will restore the match starting in calendar year 2021 (January) at the 4% level, where it was previously."

The Hewlett-Packard Enterprise 401(k) Plan had assets of $8.5 billion as of Dec. 31, 2019, according to the latest 11-K statement

Although some employers have suspended the match to cut costs, some early surveys show most haven't messed with it.

Only 5.1% of sponsors had suspended matching contributions and 0.7% reduced the match, said a June 25 survey of 137 employers by the Plan Sponsor Council of America. Another 2.9% are considering suspending or reducing the match.

"There have been a lot of conversations, but that hasn't translated into action," said Francisco Negron, head of client services for T. Rowe Price Retirement Plan Services, Baltimore.

Among all record-keeping clients, less than 2% have suspended it. (The company didn't identify what percentage of plans offer matches.)

Three sponsors have announced they will reinstate the match on Jan. 1, he said. "It remains to be seen how others will act," he added. "Some may change the frequency of making the match."

Mr. Negron added that he has seen "very little change" in deferral percentage by participants during the height of the market turmoil reacting to the coronavirus. More than 96% of participants have "stayed the course" by not changing their investments. The others moved assets from equity to stable value or other conservative investments.

In early June, Fidelity Investments, Boston, reported that 9.6% of sponsors had suspended or reduced the match, based on a survey of 302 clients. Another 8.6% were considering some action.

However, 55% of clients that had suspended or reduced the match reported they have plans to reinstate it, said Jeanne Thompson, senior vice president for workplace consulting. "There's a motivation on employers part to reinstate the match" as way of retaining employees and helping them prepare them for retirement, she said.

The reinstatement goals by sponsors seem to reflect what happened among Fidelity clients in the aftermath of the 2008-2009 global economic crisis.

Fidelity reported that 8% of 293 clients had reduced or suspended the match in 2009. In a March 2010 survey, the company said 44% had already reinstated the match or had planned to do so within 12 months of the survey's publication.

Among the largest clients — with 5,000 or more employees — about 70% had reinstated the match or planned to do so within 12 months of the survey's publication.

Ms. Thompson added that participants proved resilient during and after the 2008-2009 economic crisis — an encouraging sign for the current crisis. "From a past perspective, most continued contributing," she said.

During the first quarter of 2009, the average annual participant contribution was 8% of salary, excluding employer contributions.

That rate held constant through the first quarter of 2014. Then, the rate began moving up, reaching 8.9% during the first quarter of 2020.

At the same time, average employer contributions — company matches and profit sharing — were 4% of annual salary during the first quarter of 2009, slipping to 3.9% during the first quarter of 2010. Since then, the rate climbed slowly to 4.7% by the first quarter of 2020.

Ms. Thompson said some employers, faced with tough financial circumstances, chose cutting or reducing the match as opposed to furloughing or laying off employees.