Most Employers, Workers Remain Committed to Their 401(k)

Despite COVID-19 concerns, most employers continue to make contributions – and few participants are taking loans or withdrawals.

Arlington, VA (June 25, 2020) – During a period of unprecedented economic turmoil and uncertainty, most employers are continuing to contribute to their retirement plans while making adjustments to help participants access savings if needed, according to the Plan Sponsor Council of America’s (PSCA) most recent snapshot survey of plan sponsors. PSCA is part of the American Retirement Association.

“Despite the headlines the vast majority of employers have not moved to suspend their contributions,” said PSCA Research Director Hattie Greenan. “Employers, doubtless helped by support from the Payroll Protection Program, are responding to current conditions by largely staying the course, implementing plan provisions to make it easier for impacted participants to access their retirement savings if needed, but also providing education on the long-term effects of taking distributions and loans.”

Employer Contributions

No responding organizations indicated that they are currently considering terminating the plan as a result of the ongoing pandemic and economic conditions and more than 90 percent of respondent organizations are making no changes to employer contributions at this time. Additionally,

• Five percent of respondents have suspended matching contributions and fewer than 1 percent have suspended non-matching (profit-sharing) contributions.  Larger organizations are somewhat more likely to have suspended the match.
• Three percent of organizations are considering reducing or suspending contributions but have not made a decision at this time.
   

CARES Act Adoptions

Almost three months after the passage of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, most plan sponsors have implemented at least one of the optional expanded loan or withdrawal provisions designed to help relieve the economic impact felt by participants as a result of the COVID-19 pandemic.

• Nearly two-thirds (63.5 percent) of respondent plans are allowing participants to take Coronavirus-Related Distributions (CRDs).
• Only a third (36.5 percent) of respondents increased plan loan amounts to the lesser of $100,000 or 100 percent of the vested account (vs. previous limits of $50,000 or 50 percent of the vested account).
• One-in-five plan sponsors (19.7 percent) are still taking a wait-and-see approach, and fewer than 10 percent of employers have already determined they will not implement any of the optional CARES Act provisions.
   

Participant Response

While the majority of plans have adopted the expanded access provisions of the CARES Act, few participants have taken advantage as of early June.

• Among plans offering a CRD, nearly 40 percent say an average of just 1-5 percent of participants have taken one, though nearly as many say that fewer than 1 percent of participants have done so, and 18.4 percent report that no participants have.
• Among plans that have increased the loan limits, most report that fewer than 1 percent of participants have taken advantage of this option, and more than a quarter state that none have.
• Nearly seventy percent of organizations stated that plan loan activity throughout the last few months is about the same as usual (whether they implemented CARES Act loan provisions or not), with only 13.4 percent noting an increase, and 10.9 percent actually noting a decrease. 
   

“Employers want participants to have access to their accounts if absolutely necessary – they understand that the current crisis might take precedence over saving for retirement,” said Nevin Adams, Chief Content Officer of the American Retirement Association. “But they are also concerned about the long-term financial security of their employees and their ability to retire so while they are providing access, they are also providing education on the impact of the various options.”

In fact, half of respondents are currently communicating the impact of plan loans and distributions on retirement savings to participants – a third (32.4 percent) already have and 17.6 percent are currently creating the communications.

“Though the full economic impact of the COVID-19 pandemic is still not yet known, and funds from the Payroll Protection Program continue to flow, organizations and participants seem largely to be staying the course when it comes to retirement savings,” Adams concludes.

About the Survey
PSCA surveyed plan sponsors from June 2-June 16, 2020 regarding their response to current conditions. The survey received responses from 137 companies that sponsor a 401(k) plan for employees. The full report is available at https://www.psca.org/research/cares_snapshot2.