Some firms pause 401(k) match program amid coronavirus

Alicia Munnell, Director at Boston College's Center for Retirement Research, joins Yahoo Finance’s Zack Guzman to discuss how Americans can prepare for retirement as some companies stop matching employee's 401(k) contributions.

Video transcript

ZACK GUZMAN: Welcome back to live market coverage here on Yahoo Finance. Right now, the gains posted by the major indices are holding for now in the afternoon trade. The S&P still up by about 2.1%. We'll see what happens later on in the day. But right now, we are discussing the way that companies are grappling with paying their workers in terms of matching 401(k) contributions, why some companies are needing to pull back. That's the topic of today's Funding Our Future discussion. Of course, Funding Our Future is an alliance of organizations dedicated to making a secure retirement possible for all Americans.

And in today's segment, we are joined by Alicia Munnell. She's at the Center for Retirement Research, the director at-- at Boston College. And right now, Alicia, I want to dig into this first topic here in terms of companies not maybe matching. Of course, it's been a big thing for a lot of Americans in saving for retirement, the company match, not only the additional dollars going to retirement, but also incentivizing more workers to put up their own contributions there in terms of the breakdown of how much they'd be taking home in salary. So what is the impact of this, and how should Americans be thinking about it?

ALICIA MUNNELL: So absolutely, the employer match is part-- part of the 401(k) arrangement. Generally, employees put about 6%, and employers put in another 3%. It's totally voluntary, though, and that's driven home during these financial crises. What's happened now is also happened in the 2008 recession, when you saw over 200 companies suspend the employer match. And now we see about 12 to 14 companies doing it.

Some large companies, not unexpectedly, in the hospitality business, such as Marriott, have suspended the match, but that's because they're under enormous pressure generally and need to come back in some places. So what happened after the 2008 event was that 80% of those companies ended up restoring the match, and I would suspect that's what's going to happen here eventually. It just may take a little longer this time than it took last time.

ZACK GUZMAN: I mean, I-- I guess at a time when we're seeing record surges in unemployment claims here in the US, a 401(k) match might be secondary to just the-- the fears of losing your job. But you also wrote an op-ed that Congress did miss an opportunity to help make workers whole here, and we're thinking about the way that-- that they instituted stimulus measures here. What did you think that Congress could have been doing better to make sure that workers were made whole, as, again, we saw 6 million-- more than 6 million unemployment claims last week?

ALICIA MUNNELL: So I was very impressed with the approach taken by Denmark and some of the other countries that essentially froze in place the employment relationships and then had the government pay the employer to continue paying the employee so that when this thing is over, the economy can start rapidly.

But I also think psychologically, it's such a more comfortable position to be in, to be-- know that you still have a job rather than hurling yourself into the unemployment insurance lines that sound terrible right now, and we just didn't do that. And I think we have a chance to do it going forward. Yes, there are a lot of unemployment insurance claims, but there's still a lot of people who could retain their position if the government provided some support.

ZACK GUZMAN: And you guys also, at the-- at the Center for Retirement Research, dug into the changes through the CARES act, that $2 trillion stimulus bill that added some rule changes for people who were diagnosed with COVID-19 and the way that could tap their retirement funds to pay for some of these costs. What did you see when you looked at the numbers in terms of how that might help out? And what more can be done on that front?

ALICIA MUNNELL: So you're right, the legislation included about three provisions that made it easier for people who have 401(k) plans, and they, of course, are the lucky ones because not everybody has a retirement plan. But it made it easier for people to borrow from the plan. It made it easier for people to take money out of the plan, and it didn't require retirees this year to take money out, trying to not force them to sell at the bottom of the market.

Basically, before this legislation, you could borrow up to 50% of your holdings, up to $50,000. Those percentages and amounts were changed to 100% of the money in your plan, up to $100,000. That's for borrowing, and then you don't have to pay back your loan within the year. This also applied to people taking-- withdrawing their funds from 401(k) plans. Usually when you take any money out before you're 59 and 1/2, you have a 10% penalty. And also, there's a 20% withholding of the taxes that you're going to have to pay on that money.

Under the CARES provisions, there will be no penalty for a while, no 20% withholding, and you will be able to put that money back in the plan if you want to at a later date. So it's-- it's easier for people to access their money. People who still have jobs, though, should really do anything other than access their money because that money needs to be there for when they stop working. And [INAUDIBLE] take money out, they lose not only the money out-- they take out, but sort of all the earnings on that going forward.

ZACK GUZMAN: No, absolutely, important to keep in mind, but important distinctions there in terms of the-- the rule changes that we have seen through the CARES act as well. Alicia Munnell, thank you so much for joining us to bring us those.

ALICIA MUNNELL: My pleasure.