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You are suspending your 401(k) matching during COVID-19.  What advice should you give your employees? Thumbnail

You are suspending your 401(k) matching during COVID-19. What advice should you give your employees?

According to a recent survey by the Plan Sponsor Council of America, 16.1 percent of organizations have suspended matching employer contributions due to financial hardships caused by COVID-19. Worse yet, 1.3 percent of businesses have terminated their 401(k) plans altogether.1 Millions of Americans rely on their 401(k) and matching employer contributions to bolster their savings for retirement.

If you recently made an adjustment to its 401(k) offerings, your employees are probably wondering how this could impact their future retirement - and what next steps should they be taking. 

Why Are Employers Changing Their 401(k) Plans?

COVID-19 has had a tremendous impact on businesses around the world. With most states continuing to implement strict safety protocols, businesses have been forced to reduce hours, minimize capacity or cease operation altogether. With Americans encouraged to stay home, foot traffic all but vanished across America for months for the majority of 2020 and now the beginning of 2021.

Even as states began relaxing measures and stores started opening back up, America has since remained suspended in a fairly volatile market. People are worried about what’s to come, they’re strapped for cash and not willing to spend like they used to. In return, businesses are suffering and searching for ways to save. One of the first things to go is often, unfortunately, employer-sponsored benefits such as 401(k) plans or their matching contributions.

Is it Legal for an Employer to Suspend Matching Contributions?

In most cases, yes. It is legal for an employer to suspend matching 401(k) contributions. While it is usually an enticing addition to your benefits package, employers do have the power to simply stop offering this benefit. The most important thing an employer can do in this instance, however, is to effectively communicate with employees who will be affected by the change. For example, explaining that cutting these benefits is your solution to avoiding layoffs will likely make employees more understanding and receptive to the change.

If your employer offers contribution matches to a safe harbor 401(k) plan, they must offer notice to employees 30 to 90 days in advance of suspending contributions.2   

What Should Your Employees Do if You Suspend Your Matching Contributions?

In the case that you do suspend matching contributions, there are a few next steps you your employees can take to help maintain and grow their retirement savings.

1. Resist the Urge to Panic

Having an employer suspend matching contributions, even if it’s only temporary, is a sign of the times. We’re in the midst of a global pandemic, the stock market’s unpredictable and people are worried about money.  Hopefully they don't think they’d be better off draining the account and having that money under the mattress instead. 

But the truth of the matter is, they should be making decisions about your money with objectivity - not gut reactions and emotions heightened by media. Withdrawing any amount from their 401(k) now will only rob their future retirement. Unless they're in dire need of financial assistance, this option should be avoided.

2. Talk to a Financial Advisor

An advisor’s sole responsibility is to help people make unbiased, educated and objective decisions about their money. If you have a responsive, reliable and accessible retirement plan advisor, ask him or her to hold a group virtual meeting to discuss potential paths going forward i.e., How can they make up missing contributions?  What financial impact  will this change have on their future retirement?  Your employees most likely will have plenty of questions regarding this change to your company's 401(k), and talking to an advisor is the perfect place to start.

3. Revisit Their Portfolio & Other Retirement Accounts

The market is volatile and economic confidence is low among investors. Suggest they use this as an opportunity to reevaluate their current asset allocations and investment strategies.  Your retirement plan advisor will be able to identify potential areas for improvement based on current tolerance for risk. 

4. Increase Their Own 401(k) Contributions

While you may have cut out matching contributions, that doesn’t mean your employees can't contribute to their own 401(k).   If they have the means to do so, they can consider upping their own contributions, for now at least, to help offset the loss of any missing contribution matches.

If you've recently suspended your 401(k) matching contributions, hopefully it is just temporary. Suggest that your employees work with your retirement plan advisor to understand the impact this may have on their future retirement earnings and what they should be doing right now to make up for any lost funds. 

  1. https://www.psca.org/sites/psca.org/files/uploads/Research/snapshot_surveys/CARES%20Act%20Snapshot%20Summary.pdf
  2. https://www.irs.gov/retirement-plans/mid-year-changes-to-safe-harbor-401k-plans-and-notices

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

Joseph Cappuccino is a registered representative with, and securities and advisory services offered through LPL Financial, A Registered Investment Advisor.  Member of FINRA/SIPC # 1-05100621

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