More Companies Reinstate 401(k) Matching Funds
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What change are employers making to 401(k) matches after the pandemic?
Here's your money briefing for Thursday, December 3rd. I'm J.R. Whelan for The Wall Street Journal. Good news for workers with 401k retirement savings accounts. Many employers, after turning off matching contributions at the start of the pandemic, are now reinstating them.
Given the economic rebound that we saw this summer, companies acted quickly to do that when they could.
But it's more than just economics that are getting companies to bring back matching funds. Our retirement reporter Ann Tergesen will be here to discuss. That's after the break.
At the start of the economic downturn from the pandemic, one of the first cost-cutting moves companies made was to turn off their matching contributions to employees' 401k accounts. But now many of them are reinstating their matching programs. Our retirement reporter Anne Turgason has been following this, and she joins us now.
How does a typical employer 401(k) matching program work?
Anne, thanks for being here. You're welcome. So before we get into the latest developments, can you just remind us how a typical 401k with matching works?
Yeah, it sort of depends. You know, companies set up different structures to do this. I mean, I think the most common is that when an employee puts money in a 401k plan, every paycheck you get, you know, you say, hey, I want to put 10% in the 401k. So that money comes out of your paycheck, it goes into the 401k, usually the employer will match at that time. But there are companies that save the match and they will do it in a lump sum at the end of the year. And the advantage to the company of doing that is that if an employee leaves during the course of the year, then the company saves on making matching contributions to that employee. So it really varies.
Okay, got it.
Why did companies suspend 401(k) matches at the start of the pandemic?
Now let's go back to the start of the pandemic. You know, it seems like forever ago, but companies really had to scramble to conserve funds back in March and April.
Yeah, so companies that like were under immediate duress, you know, starting at the very beginning of the shutdowns that we saw in starting in mid-March, you know, companies like Amtrak in the travel industry, Norwegian Cruise Lines, you know, again, travel industry. So there was just this sort of shutdown that, you know, companies like that saw a big effect. And this was one of the immediate tools that they reached for. It was usually part of a broader package that in some cases also included salary reductions, layoffs or furloughs.
The federal government stepped in with some pretty big stimulus packages at that time. Did that allow any companies to continue with their matching programs?
It's hard to know. I think the reality varies from company to company, and it's hard to know. But a consultant who works with 401k plans said she believes that some of the relief programs that we saw earlier in the year helped some companies to avoid having to make cuts in their 401k matches, including the Paycheck Protection Program, which was specifically aimed at businesses.
So how big of a reversal are we seeing now?
Did federal relief programs like the PPP help companies keep matching contributions?
How many companies are reinstating their 401k match?
So the data varies from one 401k administrator to another, but generally I'm hearing things like T. Rowe Price, for example, which is a large 401k administrator. It said about 9% of its clients have suspended their 401k matching contributions this year, but one third of them have actually already reinstated those matching contributions. or they plan to do so by the end of the year, which, you know, is just a couple weeks away. So it's a story where, you know, the companies that are suspending their matching contributions are turning it back on as quickly as they possibly can. And given the economic rebound that we saw this summer, companies acted quickly to do that when they could.
So the economics of these companies definitely improved. But also, what else went into the thinking behind reinstating the 401k match?
You know, I think what we saw in the Great Recession, the 2008 period, was that it took a lot longer for companies to reinstate their 401k matches, that more companies suspended and it took a lot longer to reinstate.
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Chapters
5 chapters
1
What change are employers making to 401(k) matches after the pandemic?
0:05–0:58
2
How does a typical employer 401(k) matching program work?
0:58–1:46
3
Why did companies suspend 401(k) matches at the start of the pandemic?
1:46–3:03
4
Did federal relief programs like the PPP help companies keep matching contributions?
3:03–4:45
5
How many companies are reinstating matches and how quickly are they doing it?
4:45–5:38
Speakers
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