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COVID pressured some employers to suspended their 401(k) match

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As soon as the economy shut down last March, the Center for Retirement Research decided to systematically record the names of companies that announced they were suspending the employer 401(k) match.

We thought we were quite clever because during the 2008-2009 meltdown, we started late and had to go back and collect the announcements.

It looked initially like employer suspension of the 401(k) match was going to be a big deal. In March and April, a number of large companies suspended their match, including Kelly Services (113,468 participants), Marriott Vacations Worldwide
MAR,
-0.48%

 (9,715 active participants), and Amtrak (18,780 active participants). (Active participant data are from the Department of Labor’s Form 5500.)

But, as of today, our data suggest that less than 1% of plan sponsors (with more than 100 participants) covering 1.6% of plan participants have suspended the match. A similar calculation for the Great Recession in 2008-2009 showed 5% of participants saw their employer’s match suspended.

The conclusion seemed to be that companies — outside of travel and hospitality — were not affected by the pandemic, did not experience liquidity pressures, and saw no need to suspend the employer match. I do think that suspension of the match is a much lesser deal this time around.

But our numbers are much lower than those emerging from the financial services industry. A December Wall Street Journal article reports numbers from T. Rowe Price (9% of large plan sponsors suspended or reduced matching) and Ascensus (21% of employers suspended contributions), noting that most of the companies who suspended their contributions have since reinstated them.

In contrast, among Vanguard plans, only 7% of companies have suspended their matches, and a November snapshot by the Plan Sponsor Council of America (PSCA) found only 5% of firms reported suspending their match.

In any case, based on the industry numbers, it seems reasonable to say that between 5% and 20% of plan sponsors suspended their matching contributions. This brings me back to our numbers.

Our information comes from weekly checks of major corporate newswires, companies’ quarterly SEC filings, and Google for any mention of match suspensions or reinstatements (using a variety of key words). We also monitor social media posts to identify companies that have suspended or reinstated a match. We then verify the report through either a corporate press release or a direct email response from the company.

Of course, not all suspensions are newsworthy enough to make it into the national press. Clearly, the larger the company the more likely the suspension would be reported. Therefore, it probably makes sense to look at our data on suspensions by plan size (see Table 1). For larger plans — 5,000+ participants — the reports show that the percentage of both plans and participants involved is 2.3%. For plans, this percentage turns out to be similar to the 3.4% reported for the same size firms in the November PSCA survey. So it appears that our data are doing a reasonable job of capturing large firm activity. Much of the additional count comes from smaller employers, whose compensation changes do not make the news.

Therefore, our data are useful for tracking the suspension behavior of large firms. And comparing our results — based on the same methodology — for the Great Recession and the pandemic supports the notion that match suspensions are simply not that important this time around.



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‘I could live on my Social Security and still save money’: This 66-year-old left Chicago for ‘calming’ Costa Rica — where he now plans to live indefinitely

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Editor’s note: This article was first published in September 2019.

A school break changed 66-year-old Martin Farber’s life forever.

In 2007, his daughter — who at the time was attending Illinois State University — decided she wanted to spend a college holiday volunteering in Costa Rica and staying with a local family, he explains. She came home raving about the experience, so, in 2008, Farber — who at the time was living in Evanston, Ill., just outside Chicago, and selling cars — took his first trip there.

“It was a big surprise to me — bumpy roads, dogs barking in the streets,” he says. “I wasn’t enamored at first.”

But as his daughter began traveling there more and eventually moved there for a year, he took additional trips to Costa Rica. It quickly grew on him — in particular, the people. “The Costa Rican people are warm, open and friendly. I felt less invisible in a strange country in a strange town where I didn’t speak the language than I did in Evanston.”

And the more time he spent there, the more it impacted him: “On one of my trips there, I thought: My daughter’s life makes more sense than mine,” he says. “There was nothing wrong with my life, but I felt that my life was out of context with who I’d become. … I would have bills and make money to pay them, but that had ceased to be satisfying,” he recalls. “I knew I needed to change my life — there was no more joy in what I was doing.”

What’s more, when he’d return from his Costa Rica trips, people noticed. “I would come back, and my friends and therapist would say: You seem better after you go,” he says with a laugh.

A view from the hot springs near Martin Farber’s home in Costa Rica.


Martin Farber

So in 2014, he packed up and moved to Orosi — a picturesque, lush small town with waterfalls and hot springs a little over an hour’s drive from San Jose — promising himself he’d stay for two years. It’s been five, and he now plans to stay in Costa Rica indefinitely. (Though Farber notes that, to him, “it’s not a retirement; it’s a chance to lead a new and different life.”)

Here’s what his life is like, from costs to health care to residency to everyday life:

The cost: While many expats spend way more living in Costa Rica, Farber says: “I could live on my Social Security and still save money.” He says “a person can live on $1,200 per month, two people on $2,000.” The key, he says, is to live more like he does and as the Costa Ricans do — in a modest home, eating local food and purchasing local goods.

Indeed, Farber himself spends just $300 a month for rent (he rents a home from a friend who moved recently and gave him a good deal), roughly $225 a month on groceries and just $50 a month total on water and electricity (the temperate climate in Orosi means you rarely need heat or air conditioning). The veteran Volkswagen
VOW,
+0.96%

 
VLKAF,
+0.98%

salesman saves money by not owning a car (those over 65 ride municipal buses for free), which can be a significant expense in Costa Rica; for his cellphone, “I pay as I go … roughly $10 may last me a couple weeks or more,” he says, adding that “many people handle there their cellphones this way. You can get them recharged anywhere.”

His major expense is travel: He goes back to the U.S. to visit his mother in Florida several times a year and lately has spent part of the summer in Chicago helping out a friend with a dealership there. He also spends a good amount of money on health care. He says that while flights can be had for as little as $350 roundtrip during offseasons, the cost can be much higher the rest of the year.

In the saddle.


Martin Farber

Health care: Farber, who has permanent resident status in Costa Rica, says he pays about $90 per month to participate in the country’s health-care system — adding that the health care he’s received has been very good. (A 2018 study of health-care quality and access in more than 190 nations ranked Costa Rica No. 62.)

When he developed a detached retina, though, he paid for the procedure out of pocket so that he didn’t have to wait for the required surgery, he says — adding that the entire procedure cost him about $5,000. “I would have had to have waited four days,” he says, if he had not paid to expedite matters. “That might have been fine, but it might not.” And he adds that the quality of care depends on where you get it in the country.

Lifestyle: Though Farber says that he “moved here with no goals and no agenda,” he’s found plenty to do. “I take Spanish lessons two days a week for two hours a day. It’s been great. I never thought I would acquire a usable language in my 60s,” he says. He also rides his bike all around the area, does some writing and belongs to a community group that undertakes projects to improve the area.

And he often simply takes in nature, which he says has been an essential part of why he feels calmer and more relaxed in Costa Rica than in the U.S. “I live at 3,000 feet but in a valley surrounded by coffee fields and lime trees and water. At night, if I open the windows, I can hear the river rushing by,” he says. “It is very calming … hundreds of trees everywhere … you know the Earth is alive.”

The historic Iglesia de San José de Orosi.


iStock

Cons: “I don’t want to overglorify. It’s not without its problems,” Farber says of Costa Rica. “There are social problems and downsides.” He notes that crime and petty theft can be a problem (“I am cautious,” he says of his approach) and seem to have increased since he moved there, and adds that he misses out on some cultural things because of where he lives. And, he says with a laugh, “I can’t order Thai food at 9 at night.” But, he adds: “These are trade-offs — in the afternoon, I get to walk in the coffee fields and see flocks of parrots.”

Residency: To qualify for Costa Rica’s pensionado visa, expats must prove that they have a pension of at least $1,000 coming in each month. (Here are the details of that program.) Once you have lived in Costa Rica for three years, you can apply for permanent residency. Farber used a lawyer to help him figure out the ins and outs of residency options; his entire path to permanent residency took about a year, he says.

The bottom line: “After five years I am still amazed and surprised that I made the decision to lead a life I never thought I would,” he says. And while he may not stay in Orosi forever — “the town doesn’t have an ambulance, [and] I don’t know what it will be like to be 80 there,” he says — he does plan to stay in Costa Rica in no small part because of the people and sense of community. “I have the feeling that life is good here,” he says. “It’s hard sometimes, but we are all in it together.”



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Mutual Funds Weekly: These money and investing tips can help you read the market’s signs and stay on your path

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Mutual Funds Weekly: These money and investing tips can help you read the market’s signs and stay on your path

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