COVID-19 And The Toll On Retirement Savings

Published on

Smaller companies more likely to have suspended retirement contributions during COVID-19

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

Q3 2020 hedge fund letters, conferences and more

Arlington, VA (Dec. 8, 2020) – In contrast to the response during the 2008-09 financial crisis, more than 90 percent of employers will make their retirement plan contributions this year, though smaller organizations are more likely to have sus­pended or reduced plan contributions in the wake of the COVID-19 pandemic, according to PSCA’s latest snapshot survey of retirement plan sponsors.

Though most companies are not making changes to plan contributions this year, smaller organizations have clearly been more impacted by current conditions and are thus more likely to have suspended or reduced plan contributions – more than one-in-ten (11.5 percent) plans with fewer than 50 participants have made changes to the matching contribution – more than three times the number of organizations with 5,000 or more participants.

COVID Versus the Great Recession

“We often are asked how companies are responding to current economic condi­tions as compared to the financial crisis of 2008/2009 – the short answer is that, over a somewhat longer time horizon, 4 times as many employers suspended or reduced the match than compared to now,” said Hattie Greenan, research director for PSCA, part of the American Retirement Association. “Where their retirement plans are concerned, employers’ responses to current conditions seems more measured than in 08/09 – we may be seeing the impact of lessons learned.”

In 2008 companies that suspended their matching contributions experienced a decrease in plan participation to a much greater degree (72.9 percent of companies) than those that did not change their matching contribution (14.4 percent of companies), as well as a decrease in participant deferral rates.

“I think many went into this period expecting it wouldn't last all that long, likely muting the potential impact on retirement savings,” commented Nevin Adams, chief content officer and head of research for the American Retirement Association.  “Since then, there have been other mitigating factors, such as the recent broad-based government assistance in the form of the Payroll Protection Program, and that has almost certainly helped as well.”

COVID-Related Retirement Plan Designs

Most responding organizations implemented at least one of the optional provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, designed to help relieve the economic impact felt by participants as a result of the COVID-19 pandemic. More than half of the responding plans are allowing coronavirus-related distributions (CRDs), and nearly a third are allowing increased plan loan amounts. Half of plans are allowing participants to pause the paydown of existing loans that are due through December 1, 2020 and defer payments for up to a year, though this is significantly more common at large companies (73.3 percent of plans) versus smaller ones (23.1 percent).

Participant Response

While most organi­zations have still not noted an increase in plan loans or withdrawals this year, more are noting an increase now than in June, as the economic impact of the pandemic continues, and the Payroll Protection Program and unemployment benefits lapse. A quarter of plan sponsors now indicate an increase in plan loans, up from 13 percent five months ago, while nearly 40 percent of plans noted an increase in withdrawals.

“Ironically, knowing that they could access those retirement funds in an emergency may well have tempered actual withdrawals to date, though we’re not out of those woods just yet,” noted Adams. “Quick Congressional action in the form of the CARES Act clearly played an important role in helping provide reassurance during a critical period.”

While employers have largely remained resilient in the commitment to retirement plan contributions in 2020, the economic impact of the pandemic continues to reverberate, and small business owners still desperately are looking for some legislative relief on contribution timing.  If only 10 percent of the roughly 600,000 employers suspended or reduced their contributions, the long-term impact on retirement security would be significant.

Fortunately, employers are appreciative of this impact.  As one respondent noted, “Good retirement plans for our employees is a forever need.”

About the Survey

PSCA surveyed plan sponsors in early November 2020 regarding their response to current conditions. The survey received responses from 139 companies that sponsor a 401(k) plan for employees. The full report is available at

About the Plan Sponsor Council of America

The Plan Sponsor Council of America (PSCA), part of the American Retirement Association (ARA), is a diverse, collaborative community of employee benefit plan sponsors, working together on behalf of millions of employees to solve real problems, create positive change and expand on the success of America’s voluntary, employer-sponsored retirement system. With members representing employers of all sizes, PSCA offers a forum for comprehensive dialogue. By sharing our collective knowledge and experience as plan sponsors, PSCA also serves as a resource to policymakers, the media and other stakeholders as part of its commitment to improving retirement security for millions of Americans. For more information, visit