You may have missed the headlines, but in recent weeks a couple of employers have announced the suspension of their 401(k) matches. What are NAPA-Net readers hearing and seeing?
While there appears to be some debate as to whether we’re in a traditional recession or not—regardless, and certainly in some industries, it’s clear that we’re not quite back to “normal.” In previous recessions—certainly post the tech “bubble” in 2003[i] and during the wake of the so-called “great recession” of 2007-08, some employers did[ii]—briefly—reduce and/or suspend their matches (among other cost-cutting measures).
And while we’re said to be in the midst of a “great resignation” or a “boomerang” as workers return to…work…a quick internet search does turn up a couple (see loanDepot suspends 401(k) match for employees while boosting exec pay, Gannett asks employees for unpaid leave, suspends 401(k) match, and more)—though only a couple.
Suspension ‘Chord?’
We started with a foundation question, asking readers if they had heard of any plans suspending or cutting their 401(k)/403(b) match for next year:
87% - No.
7% - Yes.
6% - There's been discussion, but nothing serious.
Have had no specific discussions yet at this point with plan sponsors as far as suspending company match contributions in the near future.
Most of my clients are looking for workers. Increased compensation and benefits are their focus to attract and retain.
Hasn't come up in many conversations.
More about increasing than decreasing.
One higher-ed client with a fairly substantial match is thinking about reducing. They recently added a vesting schedule for new EEs.
Twilight zone time again.... about half of our clients are improving their match (to try and attract workers).
Match ‘Sticks?’
And then we asked readers if any of the plans they work with have cut or suspended their match for next year:
84% - No.
9% - There's been discussion, but nothing serious.
7% - Yes.
And then we asked if any of the plans they work with are planning to INCREASE their match for next year:
47% - No.
38% - Yes.
15% - There's been discussion, but nothing serious.
Reader Comments
We've done multiple match benchmarks for the plans we consult on. The end goal of these sponsors is to create an attractive benefit in addition to the compensation packages they are offering participants. We've seen increases to the safe harbor matching contribution from 100% on 4% to 100% on upwards of 6% pay.
It may not be increasing the match as compared to restructuring the match and profit-sharing contribution to focus on supporting key and mission critical employees.
Recruitment is a big deal.
Increase match but only for those who are full time.
I haven't heard anything about changing any matches yet, and actually clients that are intending to add auto enroll (which will increase the match spend) are still moving forward with planned changes.
When discussing options with new plans, it seems a lot of businesses are hesitant committing to a match.
Talking to plan sponsors to stretch out the match.
Company matches across our practice are continuing to be maintained. There have been discussions around reducing vesting schedules, as well as going with a safe harbor matching formula. All in an effort to maintain, recruit and reward employees.
No other comments other than some of my plan sponsor clients have hinted that their discretionary profit-sharing contribution for PYE 2022 may be lower than 2021s contribution (or be zero).
Our clients still face an extremely tight labor market. This is exacerbated with leadership turnover & learning curve among new employees. While there is some glimmer of a bit of release, that simply means back to the "normal" environment of very tight labor market and difficult recruiting & retention pressures on HR. For companies with high margins in their business (e.g., pharmaceutical), we are seeing increasingly match and benefits packages overall. For companies with tighter/shrinking margins it’s a balancing act to retain workers, knowing that loyalty has broken post covid and employees will move to a new company for an extra 50¢ ($1.00) per hour wage increase. I think we will see industry/company specific responses to this as the 401(k) plan is simply one tool in the overall compensation & benefits landscape. Frankly, the more regulation and change that occurs = more cost and disincentive for companies (especially small employers) to set up plans.
Some of my clients suspended their company match in mid-2020 due to COVID, but all reinstated them before the end of that year. Since that point there has only been talk of increasing matching formulas, not reducing them.
A few are looking at it. It's a very competitive market and 401K matches are a key part of recruiting and retention.
One client increasing. another client who suspended match in 2020 just resumed match in Q4 2022
Some of my clients suspended their company match in mid-2020 due to COVID, but all reinstated them before the end of that year. Since that point there has only been talk of increasing matching formulas, not reducing them.
More of my clients discussing increase rather than decrease.
I've had more discussions adding profit sharing or cash balance plans.
Everyone seems to be sitting tight, waiting to see what comes next.
We have seen no evidence of match cutbacks... to the contrary, the only discussion with many clients has been either increasing the match or structuring it a big differently (e.g. stretch match to go up to a higher cap amount).
Thanks to everyone who participated in this week’s NAPA-Net Reader Radar poll!
[ii] A 2010 survey of some 500 plan sponsors by the Plan Sponsor Council of America found that 14.8% of companies suspended the match and 10.6% suspended the non-matching contribution. Six percent of companies reduced the match and 15.8% reduced the non-match while 9.2% of companies increased matching contributions and 3.4% increased non-matching contributions.
