In this awful year, here’s some good news: Scores of companies that reduced or suspended 401(k) contributions to employees during the pandemic are restoring them.
The cuts and suspensions, made last winter and spring in an attempt to preserve cash, reflected a general corporate priority to preserve jobs and health care benefits, says Joy Napier-Joyce, head of the employee benefits practice at the law firm Jackson Lewis.
But now, “The majority of the companies that I work with that reduced or suspended their match have put the match back in place,” Napier-Joyce says, while others will resume on Jan. 1.
Of 260 companies that cut or halted 401(k) matching contributions during the downturn, 75% have now restored them, says consulting firm Towers Watson. Of these, 74%, reinstated matches at prior levels, 23% restored matches at a lower level and 3% boosted them.
“It’s reassuring that companies are trying to do the right thing,” Napier-Joyce says.
Of course, the absence of company contributions over the past few months could have a long-term effect on employee next eggs, given the tremendous stock market run that has occurred since the market lows of nine months ago. Since bottoming out in late March, the S&P 500
is up about 63%. That’s a sizable gain that some workers missed, and “nothing can be done about that,” Napier-Joyce says.
The question going forward, however: We’re clearly in the middle of a new wave of the pandemic, with new cases and deaths soaring even beyond what the country suffered through in the spring. Are companies being too hasty in restoring 401(k) contributions?
Napier-Joyce doesn’t think so.
In the spring, “We had no idea what was coming our way, how long it would last,” she says, so companies “took a conservative and thoughtful approach to batten down the hatches if you will.” She says companies have since learned to adjust and can probably ride out this current resurgence of the virus, particularly given the very good news on the vaccine front.
The suspension of matching contributions by so many companies has served as a difficult reminder to workers that the primary responsibility of saving for retirement lies with them. Two of the nation’s biggest asset management firms, Pennsylvania-based Vanguard Group and Boston-based Fidelity Investments, which manage $5.7 trillion and $3.3 trillion respectively (as of January 2020), each recommend that individuals save between 12% and 15% of their salary annually if possible. But most people don’t. Vanguard says the average 401(k) contribution was 7% of pay in 2019, a figure that rose to 11% when employer contributions were included. The firm says only 21% of 401(k) participants save more than 10% of their salary for retirement.
The long-term dearth of retirement savings helps explain why so many Americans remain unprepared for their “golden years.” The average U.S. household in the 55-64 age group, for example, has retirement savings of $408,420, according to a 2019 survey. But the median figure is far more ominous: $134,000. Remember, median means half have less than that.
How much will $134,000 generate? The answer: Not nearly enough.
So it’s no surprise, then, that the Federal Reserve estimated in May that only half of Americans aged 60+ felt that they were on track for a decent retirement. In the 45-59 age group, 44% felt this way.