As Pandemic Rolls On, Some Employers Reinstate Matches

Though their business environments have not returned to normal, some employers that had made changes to their retirement plan match are beginning to revisit this decision.

Ascensus has published a new survey analysis looking into the actions taken by its retirement plan clients, who are predominantly small businesses, in response to the coronavirus pandemic.

In the first few months of the COVID-19 outbreak, Ascensus reported a relatively small percentage of its retirement plan clients had stopped making contributions due to business interruptions. As of the end of June, most of these plans had shown “encouraging signs” of recovery and had begun submitting contributions once again.

“Additionally, the most striking month-over-month improvements were seen among the smallest businesses and within industries that we previously reported as having the most significant drop-off in contribution activity,” Ascensus says. “These plans do continue to see reduced amounts of employer contributions and/or less savers making contributions overall, but the fact that they are once again actively contributing represents a step in the right direction.”

The analysis says that improvements in total employer contributions were driven by employers reinstating matching contributions that they had previously stopped or decreased. In the accommodation and food service industry, Ascensus measures a 5.4% increase in plans making contributions over March and April levels, while 2.4% more plans sponsored by retail employers made contributions.

Another positive finding is that 9% of employers that decreased their match in or after March have since increased their match or returned to pre-March levels. In terms of participant behavior, 93.1% of savers made no change to their savings rates at all in 2020. The survey report says this illustrates “the positive value of automatic payroll deduction and suggests that savers could be using other means to manage financial needs through this period.”

Ascensus reports that employer adoption of coronavirus-related distributions (CRDs) and expanded loan options offered through the Coronavirus Aid, Relief and Economic Security (CARES) Act slowed throughout the month of June, with adoption of loan expansions being lower than that of CRDs. In both cases, larger plans are adopting at a significantly higher rate than the smallest plans. In fact, for plans with 25 or fewer contributors, just 8.5% of plans implemented CRDs, while 38.9% of plans with more than 100 contributors did so. Collectively, 8.5% of employers have adopted the loan expansion provision.

The Ascensus report concludes that, barring a dramatic national lockdown and a reversal of recent economic improvements over the lows seen in March and April, these positive developments should continue. Context for that outlook comes from recent predictions from major asset managers, who are expecting the U.S. and the world to experience a sharp, but reasonably short, “coronavirus recession.” They say there should be a noticeable recovery before year-end—but they warn that the U.S. and the world will still almost certainly see the deepest recession in post-World War II history.