Company retirement match remains the norm despite recession

WASHINGTON » The overwhelming majority of companies offering matching contributions to their employee retirement plans have continued putting money on the table to help their workers save for retirement during the coronavirus downturn.

Only 11% of employers suspended their company match in the second quarter, according to the latest retirement savings trend report from Fidelity Investments.

As the spread of the novel coronavirus began to affect the economy earlier this year, many companies, forced to close and send employees home, suspended or reduced matching contributions to their employee retirement plans. Amtrak, citing an unprecedented loss of ridership and revenue because of the pandemic, suspended its 401(k) match.

During the Great Recession, many companies reduced or suspended matching contributions.

Financial experts often chide workers for not contributing at least enough to workplace retirement plans such as a 401(k) account to get the maximum match offer by their companies. Fidelity said the most popular match formula for the plans it manages is a 100% match for the first 3% of employee contributions, and then a 50% match for the next 2%. About 40% of 401(k) plans use this formula, according to Fidelity.

More than three-quarters of workers received an employer contribution in the second quarter. The average employer contribution was $1,080.

“The company match can help drive participation in a workplace savings plan while providing employees with a savings goal to aim for, so we are encouraged to see that the majority of our clients continued to provide this important retirement savings benefit,” said Kevin Barry, president of workplace investing at Fidelity.

Among employers who suspended the company match, 32% said they plan to reinstate the benefit within the next year, and 48% have plans to restore their matches as soon as corporate finances improve, according to the Fidelity report. Only 6% said they have no plans to go back to matching employee contributions.

The report also found that many retirement plan investors weren’t scared off by the volatility in the stock market. Eightyeight percent of workers contributed to their 401(k), dropping only slightly from last quarter’s record high of 89%, Fidelity reported.

Just under 1% of 401(k) investors stopped their retirement contributions, and 9% increased their contribution rate.

If you can afford it, consider increasing your own contributions if your employer has suspended its match.

In a related issue about retirement plans, a reader wanted to know about making a withdrawal under the Coronavirus Aid, Relief, and Economic Security (Cares) Act.

Q: Under the Cares Act, can we take a withdrawal from my husband’s 401(a) without being penalized? I’m not sure my company is going to allow a hardship withdrawal.

A: A 401(a) is similar to the more familiar 401(k) plan. But this workplace retirement plan is generally for people working for a nonprofit organization, educational institution or government agency.

The Cares Act, which passed in late March, includes several provisions that cover retirement accounts. The act temporarily increases how much you can borrow from your retirement and waives the penalty for an early withdrawal.

If you’re younger than 59½, you’re ordinarily subject to a 10% early withdrawal penalty, in addition to income tax owed, if you remove money from an IRA, 401(a) or similar retirement account. However, under the Cares Act, if you have experienced financial hardship related to the pandemic, the 10% penalty is waived for distributions up to $100,000.

Here are other situations covered under the Cares Act:

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