“We are getting more inquiries from plan sponsors about what their options are,” according to Jerry Patterson, senior vice president of retirement and income solutions at Principal Financial Group. “And in some cases, we are seeing actual action taken to amend plans to reduce or suspend the match. And we expect that, as this goes on, we’ll see more of that. It will come, I think in different degrees from sectors that are being impacted most severely.”
Fidelity Investments recently polled about 1,000 employers and found that about two-thirds are not planning to suspend or reduce the match. Fewer than 10 percent of employers have or are planning to suspend or reduce their match — which is much lower at this point in the coronavirus crisis than the last recession.
Following the financial crisis of 2008-2009, Fidelity research found that nearly half of the plan sponsors that reduced their match reinstated within a year.
During the Great Recession, many companies reduced or suspended matching contributions.
“In 2009, we saw a 12 percent decrease in employer retirement plan match dollars, which slowed in 2010 with a decrease of only 1 percent,” Patterson said. “The drivers that impacted the dollars of match were all-encompassing, from retirement plan sponsors reducing the match formula to lower employment and reduced salaries.”
Patterson pointed out that the recently passed Cares Act features a provision for small- and medium-business loan relief that covers any retirement benefits along with payroll, group health benefits, rent and other expenses.
“I believe this might help some businesses to forgo suspending matches or other employer contributions and continue to support the long-term financial health of their employees,” Patterson said.
Typically, experts recommend workers contribute at least enough to their 401(k) account to get the maximum match by the company. Fidelity said the most popular match formula for its plans is a 100 percent match for the first 3 percent of employee contributions, and then a 50 percent match for the next 2 percent. About 40 percent of 401(k) plans use this formula, according to Fidelity.
“We know that there is a very direct connection between employee behavior around retirement plans and the match,” Patterson said. “We see it every time a match is introduced. People save more.”
Patterson said they are encouraging companies to reduce the match rather than suspend it.
But what should you do if your retirement plan match is reduced or suspended?
If you’re already contributing, don’t change a thing. The match is a bonus. In fact, if you can afford it, increase your own contributions to make up for the lost employer match.
If you’re not participating in your company plan, don’t let a suspension of a match stop you from starting. The current volatility in the stock market might give you pause and prevent you from contributing to your 401(k) or similar workplace plan. But fight your fear to stay away from the stock market. Inflation is a risk to your financial future, too. You won’t get the growth you need parking all your money in deposit accounts, which are paying puny rates right now.
“I’ll bet you that by the time this is finished, the coronavirus — serious as it is, especially if you or your loved ones are exposed to it in any way — will be a lot less serious than doomsayers are now predicting,” Allan Sloan, a columnist for The Washington Post, wrote earlier this year as the coronavirus started to drag down the U.S. stock market. “Nothing goes on forever, despite what you may read or hear today or tomorrow or sometime during this week. So let me repeat what I consider an eternal verity for those of us (including me) who are amateur investors. Don’t let daily news stampede you into selling or buying. Don’t try to out-trade the market. Make sure that you have a strong enough stomach and a strong enough personal balance sheet to stay the course.”
Yes, the matching contribution may have been the lure to persuade you to save for retirement. But its reduction or suspension does not change your need to save for your future retirement. In fact, the Secure Act, which passed in 2019, will require plan sponsors to provide workers with an annual disclosure showing what their monthly (and lifetime) income would be based on what they have saved. It will be a wake-up call for a lot of people.
So match or no match, save what you can. And if history repeats, when the economy gets better, those companies that reduced or stopped matching employee contributions will start again.
Please join me on Thursday, April 9, at noon (Eastern time) for a live discussion about your money.
Reader Question of the Week
If you have a retirement question, send it to firstname.lastname@example.org. In the subject line, put “Question of the Week.”
I recently wrote about coronavirus stimulus package relief for retirees. Many of you have questions about how the Coronavirus Aid, Relief, and Economic Security Act, or the Cares Act, affects retirement plans, including required minimum distributions (RMDs).
Answers to the questions are provided by Fidelity Investments, which also has a summary of key things to know about the coronavirus stimulus bills.
Q: I know the Cares Act suspends RMDs for 2020, but does this mean people have to take two distributions to account for 2020 and 2021?
A: Because the 2020 RMD was waived, there will only be one RMD for 2021.
Q: As a retiree with an IRA, can I take (and of course pay taxes on) part, but not all, of my RMD for 2020? I took a small percentage of my IRA in early January and hope not to need to withdraw any more. Is that allowed under the new act?
A: Yes, you can take a voluntary distribution from your IRA account at any time as you need, but the requirement to take a minimum distribution has been waived for 2020. As a result, your January 2020 distribution was a voluntary distribution and was not an RMD.
Q: I have a question on the new law on inherited RMDs. I’ve been taking the RMD from an inherited IRA from my mother for about 10 years. I have seen conflicting statements as to whether the 2020 RMD waiver also applies to inherited RMDs. I don’t need the money, so I am hoping I don’t need to take it.
A: RMDs for 2020 have been waived. This would include RMDs from inherited IRAs that were established before 2020.
Q: What if you’ve already withdrawn your 2020 RMD with distributions to federal and state taxes ahead of the passage of the Cares Act? Can you put the money back?
A: Congress did not specifically address the rollover question as part of the Cares Act. Your IRA custodian or plan administrator may provide you with an answer depending on where you withdrew the money. The Internal Revenue Service may provide guidance on whether your 2020 RMDs are eligible for rollover. When a similar RMD waiver was in place in 2009, the IRS did confirm that RMDs taken that were later not “required” by law could be rolled over into a retirement account. Any amount withheld for federal and state taxes would still be reported as a distribution.
Q: I just took out RMDs from my three 401(k) (now rollover IRA) accounts, wanting to strike before the balances dropped even more. Two checks have been cashed (deposited), and I still have one as a check. Do you know if it’s possible for me to reverse these distributions, as I would not have taken them and incurred the losses if I had known an option was coming?
A: Generally, a distribution can’t be reversed. You may want to check with your provider to see if that is an option in your case. One other option to “reverse” a distribution is to roll over the same amount within 60 days from the distribution date into the IRA. RMDs are generally not eligible for rollover, but the Cares Act has eliminated the RMD requirement in 2020. Although Congress did not address the rollover question as part of the Cares Act, the IRS may provide additional guidance on your question, as it did in 2009 when RMD rules were waived. You should note that IRA rollovers are generally limited to one rollover per 12-month period.
Q: If I have a 401(k) from work, can I cash that out without any penalty or tax? I am planning to replenish it within three years. Also, if so, what else should I consider when replenishing the full amount?
A: While the recently signed stimulus bill includes some provisions that may allow for the withdrawal of retirement plan assets, each plan is different, so checking with your plan provider is the best course of action.
Retirement Rants and Raves
Your thoughts: How have you been financially affected by the coronavirus? Send your comments to email@example.com. Please include your name, city and state. Put “Coronavirus Impact” in the subject line. I’m also interested in your experiences or concerns about retirement or aging. You can rant or rave. In the subject line, put “Retirement Rants and Raves.”