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Nearly 46,000 companies cut their 401 (k) contributions during the pandemic

Thousands of companies have cut the funding they typically pay to 401 (k) investors, due to the coronavirus pandemic, according to a new investigation.

About 8% of employers have reduced their 401 (k) contributions in recent months, according to the Plan Sponsor Council of America, a group that represents companies offering workplace pension plans. Another 1% plans to do so.

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The premium reduction is a cost-cutting measure for businesses at a time when the economy is still recovering from the depths of the Covid-induced economic downturn, the worst since the Great Depression.

46,000 packages

While the overall share of companies making changes is relatively small, it stands at tens of thousands of 401 (k) plans that have reduced employee benefits, according to Will Hansen, the group’s executive director.

There are approximately 572,000 401 (k) plans in the United States, according to the most recent data available from the Employee Benefits Security Administration.

Extrapolating the survey data would mean that more than 46,000 plans would cut employee 401 (k) funding, with another 5,000 considering it.

They did so in several ways, according to the survey. The largest share of 401 (k) plans – almost 4% – have stopped paying workers compensation. Another 1.5% reduced their match.

Companies have also eliminated or reduced unmatched contributions – around 1% and 1.5%, respectively.

Companies may choose to pay a non-equivalent benefit during years of high profits, for example. And, unlike the 401 (k) match, they’re often done at the end of the year rather than every pay cycle.

“Everyone guessed”

Small businesses were the most likely to make changes, according to the survey, which asked 139 businesses in November about the 401 (k) impact of the pandemic. Respondents ranged in size from those with less than 50 employees to more than 5,000.

Companies can choose to reinstate their 401 (k) contributions if there is a rapid rebound in business, Hansen said.

Economic growth has slowed considerably in recent months, according to indicators such as job growth and retail sales, but many are hoping vaccine distribution means a return to pre-Covid activities is near.

“I hope that individuals will start to see very rich social benefits once we are back in this space,” said Hansen. “But anyone can guess when that will happen.”

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