Weathering the Storm

The COVID-19 outbreak and the ensuing economic fallout presented serious challenges to DC plan sponsors and plan participants. There were widespread concerns that employers would be forced to slash plan contributions because of business challenges and that mass withdrawals from retirement accounts would occur as furloughs and unemployment soared. However, the overwhelming majority of retirement plan sponsors and plan participants appear to have taken significant action (or inaction in some areas) which likely helped them, and their plans, successfully withstand the crisis.

Statistics to Consider

Most employers resisted significant changes to their retirement plans despite the pandemic:

  • 3.6% made plan design changes as a result of COVID-19[1]
  • 5.2%suspended or reduced matching contributions and 2.2% suspended or reduced non-matching contributions as a result of the pandemic – significantly lower than the 18.5% and 26.8% respectively that did so in 2008-2009 as a result of economic conditions[1]

Many organizations took action to support employees through a difficult time:

  • 66.7% of organizations adopted one or more optional provisions of the CARES Act[1]
  • 51.8%of organizations communicated the impact of loans and distributions on retirement savings to participants or are working on it[1]

There was relatively little panic from plan participants:

  • 25% of participants changed their asset allocation in 2020[2]
  • 25.6%of plans had an increase in loan activity and37.2% had an increase in hardship or in-service withdrawals since the onset of COVID-19[1]

Some participants and numerous employers actually boosted their retirement efforts:

  • 31% of participants increased contribution amounts in 2020[2]
  • 79% of employers increased communications about retirement benefits and/or financial wellbeing as a result of the pandemic[3]

What You Should Know

Retirement readiness was an issue before the pandemic and remains a concern. Individuals impacted by job loss may end up retiring earlier than expected which can put them at risk of insufficient retirement income. Workers whose hours or wages were reduced face additional difficulty achieving their financial goals and their ability to retire comfortably and on time will be affected. Even employees who weren’t directly impacted by lost wages may have members of their households who were, an issue that could potentially impact the household’s overall retirement goals.

Financial wellness programs were valued before the economic uncertainty caused by the pandemic and should remain a major focus for employers looking to help employees deal with the lingering impacts of COVID-19 at a holistic level.

Plan sponsors may consider offering employer benefits not traditionally associated with retirement plans, including emergency savings accounts and student loan assistance programs, as they can help employees better prepare for the unexpected.

Conducting employee surveys can help plan sponsors prioritize their efforts regarding plan design and education, as well as workplace benefits outside of the plan. Any organization’s workforce likely has many and varied concerns as they continue to navigate this challenging period and giving employees the opportunity to feel heard is key.

Challenging times can be an opportunity to build trust and loyalty, which can ultimately make an organization and its retirement plan stronger. The pandemic should eventually come to an end so it’s crucial to consider how a plan sponsor’s actions will be judged in the years that follow. How well organizations helped their employees manage the crisis and which tools and resources they provided to assist them in staying on track to achieve their goals may be distinguishing characteristics going forward.