As the U.S. economy staggers under drastic government measures to curb the COVID-19 pandemic, some employers are evaluating ways to cut costs. One strategy that’s emerging: Eliminating 401(k) matching contributions.
While Vanguard and Fidelity — both of which manage employer-sponsored retirement plans — haven’t seen widespread adoption of this yet, Yahoo Money identified a handful of companies that have recently done away with their matches or are considering the move.
The efforts come when 1 in 2 Americans are already behind on their retirement savings goals. Losing a 401(k) match adds yet another setback. But the stopgap move now by employers may help them hedge against worse consequences for their workers in the future.
“I completely understand the employees’ perspective,” said Nicholas Tzoumas, president of Clearscope HR, an employee benefits firm. “But if you ask them if you would have your employer reduce the match and increase your odds of retaining a job or have your employer keep the match and the [reverse] happens, most employees would rather take a temporary elimination of their match.”
‘Bring us all through the crisis’
On March 29, Tenet Health, an operator of more than 60 hospitals nationwide, sent a notice to employees informing them that 401(k) employee contributions were being postponed, so it could allocate more resources to its coronavirus efforts. Yahoo Money obtained a copy of the notice.
“Every effort is being made to help bring us all through the crisis,” a company spokesperson, told Yahoo Money. “And we have made the decision to direct additional resources to meet the increased demand for healthcare services, address evolving patient needs in our hospitals, and protect front-line staff.”
The spokesperson said the company plans to revisit the decision to temporarily postpone the 401(k) match program later in the year.
‘I don’t have a lot of years to save’
The CEO of Situs AMC, a real estate consulting firm, told its employees on March 26 in a town hall that the company 401(k) match would be suspended for the rest of the year, according to a recording obtained by Yahoo Money.
After Yahoo Money requested comment, Situs AMC sent out a notice to employees saying it’s not suspending the matching but reserves “the right to reevaluate this decision during the remainder of 2020."
“My company had us [working] over time going back to maybe even October,” said one of the company’s underwriting analysts who asked not to be named out of concern for her job. “Business seemed good for us, but now there’s some uncertainty with what’s going to happen.”
She’s worked for the company for almost a decade, taking home a 2% match every paycheck. On average, her company contributes $50 per paycheck to her retirement savings.
“I’m in my 40s. I don’t have a lot of years to save,” the employee and mother of three said. “And so that match is not much, but it still helps.”
Making ‘difficult, cost-cutting decisions’
As state and local governments shut down non-essential businesses and stores, many retailers are turning to their retirement plan matching as a way to reduce spending.
For instance, Half Price Books, a Texas bookstore chain with 10 locations in the state, sent out a notice earlier this week suspending its 5% match on its safe harbor contribution plans, starting May 1, according to a memo shared with Yahoo Money.
“Like all retailers, our sales have been hit hard due to the COVID-19 pandemic,” said Kathy Doyle Thomas, the chief strategy officer at Half Price Books, in an emailed response to Yahoo Money. “Because of this, we are in the midst of making some difficult, cost-cutting decisions with the purpose of saving our company in the long term so we can come out on the other side of this unprecedented crisis,”
The company noted it will reevaluate how it will proceed with 401K matches in 2021 later this year.
‘I don’t even know if I’ll have a job after this’
Tzoumas noted that these companies are making the same moves he’s advising his clients to do: “Take the temporary action now and kick the can down the road,” he said. “As much as it does hurt people, reducing [the 401(k) match] is much better than the alternative.”
Take Macy’s, for example.
On March 25, the retailer sent out a notice to employees cutting its 401(k) matches, a move that was a temporary deferral until later this year, according to Blair Fasbender Rosenberg, a Macy’s spokeswoman. But five days after eliminating its match, Macy’s also furloughed thousands of workers.
“They started cutting people, then registers, and now hours,” said one Delaware employee who requested anonymity out of concern for her job. “I don’t even know if I’ll have a job after this.”
The reduction of benefits and now the furlough remind her too much of the Great Recession when she was laid off from another company and was homeless for two years.
“I really did not expect that they were going to do this, this fast,” the woman, who is in her late 60s, said. “I really did not expect we would get two weeks pay and that’s it.”