SABR Sabre Corporation

By Anne Tergesen and Dieter Holger 

The market's decline has already damaged retirement account balances. Now, more companies are cutting the contributions they make to employees' 401(k) plans to save cash in the economic crisis sparked by the coronavirus.

Amtrak, La-Z-Boy Inc., retailer Mattress Firm Inc., and travel tech company Sabre Corp. are among the first in an expected wave of businesses suspending or reducing matching contributions to employees' 401(k)s, a move that can have a spillover effect on workers' own contributions.

Marriott International, which employed some 174,000 people at the end of last year, said it would delay paying the matching contributions it was scheduled to deposit in participants' accounts on March 10 until September. Macy's Inc. is also delaying its 401(k) match to later this year, according to a spokesperson.

Lawyers and consultants who specialize in employee benefits say companies across industries have sought advice on how to suspend or reduce their payments to workers' retirement plans in recent days. Some employers have flexibility to quickly suspend or reduce their 401(k) matching contributions. But many are required to take certain steps first, including notifying employees of the change.

Compared with 2008, "a wider range of employers are taking this route and are making these difficult decisions faster, with a greater assuredness that these steps are immediately necessary, as opposed to waiting and seeing how things develop for their business," said Joy Napier-Joyce, leader of the employee-benefits practice group at law firm Jackson Lewis P.C.

Many U.S. companies have raised contributions to employees' 401(k) accounts in recent years to attract and retain workers. Now, the trend may be reversing as companies take steps to cut costs and minimize layoffs.

"To make up for the unprecedented loss of ridership and revenue, we have taken aggressive measures to cut costs to minimize employee and service impacts," an Amtrak spokesperson said. Aside from suspending its 401(k) match, the railway company said it has reduced pay for managers, among other measures.

Houston-based Mattress Firm, which filed for chapter 11 bankruptcy protection and closed some 700 stores in late 2018, has furloughed some employees amid the coronavirus crisis as part of a cost-cutting plan to "weather this storm," said Larry Fultz, chief human capital officer at the company. He said Mattress Firm has suspended its 401(k) matching contribution but "will continue to pay both the employee and company portion of health and welfare benefits."

In the wake of the 2008 financial crisis, almost 20% of U.S. companies with at least 1,000 workers surveyed by consulting and risk management firm Willis Towers Watson PLC suspended or reduced their 401(k) matching contributions. Companies that took action then include General Motors Co., for its salaried workers, and United Parcel Service Inc., for its nonunion workforce.

A GM spokesperson said the company hasn't cut 401(k) contributions during the current downturn, adding that "any cost reduction actions would be communicated with employees first."

Given the market's losses -- the S&P 500 index has declined about 22% since Feb. 20 -- a cut or suspension of a matching contribution deals a double blow to many employees. By reducing the amount of money many workers contribute, it leaves them buying fewer shares in the equity allocation of their retirement savings at a time when stocks are trading at lower prices, reducing potential gains in a rebound.

Of the more than two million participants in 401(k) plans administered by record-keeper Alight Solutions, the average account contribution was $10,092 last year. Employers put in 35% of that total, or $3,587.

"A 35% reduction in contributions may be hard for employees to make up," said Rob Austin, director of research at Alight. Employees hit by cuts to matching contributions "may need to work longer," he said.

A suspension of employer matching contributions could also cause workers to cut their own salary deferrals.

"The match is a strong incentive for people to save," Mr. Austin said. "The golden rule is to save at least enough to get the full match."

According to the nonprofit Employee Benefit Research Institute, about 20% of workers in 401(k) plans that suspended matching contributions in 2008 stopped saving in their 401(k) plans entirely that year.

Mr. Austin said he has heard from clients who are considering matching employee 401(k) contributions with company stock rather than cash, to preserve liquidity.

Employees typically contribute part of their pretax pay to a 401(k), which reduces their taxable income. That money generally isn't taxed until it is withdrawn in retirement.

Companies aren't required to make 401(k) contributions, but most do, according to Vanguard Group, record-keeper for about 1,900 401(k)-type plans. The most common approach is to match half of the amount workers put into their accounts, up to 6% of pay, according to Vanguard.

Robyn Credico, defined contribution consulting leader at Willis Towers Watson, said she is getting "a fair number of calls from clients who are preparing in case they have to do it." Amid a health crisis, she said, many executives feel that if they have to make cuts, the 401(k) match is a more tolerable target than employee health benefits.

In comparison with 2008, Ms. Credico says workers at smaller companies, especially those affected by forced closures, may be most vulnerable to cuts in retirement benefits.

Brian Graff, chief executive of lobbying group the American Retirement Association, said his organization estimates, based on surveys of members who oversee retirement plans, that more than 200,000 retirement plans sponsored by small companies are at risk of being permanently terminated.

According to Willis Towers Watson, companies that suspended their matches during the 2008 financial crisis did so for a median of 12 months. In a 2011 survey of 260 employers that had suspended their matching contributions, 75% reported restoring it by 2011. Of those that reinstated the match, 74% did so at the previous level. Another 23% used a less generous formula.

Charlene Leiss, president of Flight Centre Travel Group Ltd. Americas, whose Australian parent company owns travel agencies around the world, said its recent decision to pause 401(k) matching contribution for U.S. employees "was not a decision taken lightly."

"We look forward to reinstating the 401(k) matching benefit as soon as possible," she said.

--Suzanne Kapner contributed to this article.

Write to Anne Tergesen at anne.tergesen@wsj.com

(END) Dow Jones Newswires

April 01, 2020 09:14 ET (13:14 GMT)

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