Covid pandemic led thousands of businesses to slash 401(k) contributions
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According to Will Hansen, the group’s executive director, the total percentage of companies that have made changes is relatively small, but amounts to tens of thousands of 401 (k) plans that have reduced the benefits to employees.
According to the latest data from the Employee Benefits Security Administration, there are approximately 572,000 401 (k) plans in the United States.
Extrapolating the survey data would mean that more than 46,000 plans cut 401 (k) funding for employees, and another 5,000 are considering it.
According to the survey, they did this in a number of ways. Most of the 401 (k) plans – nearly 4% – no longer paid a match to the workers. Another 1.5% reduced their match.
Firms also eliminated or reduced mismatched contributions – around 1% and 1.5%, respectively.
For example, companies may choose to pay a mismatched benefit in years of high profits. And unlike 401 (k) matches, they are often created at the end of the year instead of every pay cycle.
“Everyone can guess”
Small businesses were most likely to make changes, according to the survey of 139 companies in November of 139 companies on the impact of the 401 (k) pandemic. The size of the respondents ranged from fewer than 50 employees to more than 5,000.
Companies could choose to reinstate their 401 (k) contributions if business recovers quickly, Hansen said.
Economic growth has slowed significantly in recent months, according to indicators such as job growth and retail sales, but many are hoping that vaccine distribution will mark a return to pre-Covid business.
“Hopefully individuals will see very rich packages of benefits once we get back into this area,” said Hansen. “But it’s everyone’s guess when that will happen.”