The company retirement match remains the norm despite coronavirus recession

As the spread of the novel coronavirus began to affect the economy earlier this year, many companies, forced to close and send employees home, suspended or reduced matching contributions to their employee retirement plans. Amtrak, citing an unprecedented loss of ridership and revenue because of the pandemic, suspended its 401(k) match.

During the Great Recession, many companies reduced or suspended matching contributions.

Financial experts often chide workers for not contributing at least enough to workplace retirement plans such as a 401(k) account to get the maximum match offer by their companies. Fidelity said the most popular match formula for the plans it manages is a 100 percent match for the first 3 percent of employee contributions, and then a 50 percent match for the next 2 percent. About 40 percent of 401(k) plans use this formula, according to Fidelity.

More than three-quarters of workers received an employer contribution in the second quarter. The average employer contribution was $1,080.

“The company match can help drive participation in a workplace savings plan while providing employees with a savings goal to aim for, so we are encouraged to see that the majority of our clients continued to provide this important retirement savings benefit,” said Kevin Barry, president of workplace investing at Fidelity.

Among employers who suspended the company match, 32 percent said they plan to reinstate the benefit within the next year and 48 percent have plans to restore their matches as soon as corporate finances improve, according to the Fidelity report. Only 6 percent said they have no plans to go back to matching employee contributions.

The report also found that many retirement plan investors weren’t scared off by the volatility in the stock market. Eighty-eight percent of workers contributed to their 401(k), dropping only slightly from last quarter’s record high of 89 percent, Fidelity reported.

Just under 1 percent of 401(k) investors stopped their retirement contributions, and 9 percent increased their contribution rate.

If you can afford it, consider increasing your own contributions if your employer has suspended its match.

If you have a personal finance or retirement question, send it to colorofmoney@washpost.com. In the subject line, put “Question of the Week.”

Q: Under the Coronavirus Aid, Relief, and Economic Security (Cares) Act, can we take a withdrawal from my husband’s 401(a) without being penalized? I’m not sure my company is going to allow a hardship withdrawal.

A: A 401(a) is similar to the more familiar 401(k) plan. But this workplace retirement plan is generally for people working for a nonprofit organization, educational institution or government agency.

The Cares Act, which passed in late March, includes several provisions that cover retirement accounts. The act temporarily increases how much you can borrow from your retirement and waives the penalty for an early withdrawal.

If you’re younger than 59½, you’re ordinarily subject to a 10 percent early withdrawal penalty, in addition to income tax owed, if you remove money from an IRA, 401(a) or similar retirement account. However, under the Cares Act, if you have experienced financial hardship related to the pandemic, the 10 percent penalty is waived for distributions up to $100,000.

Here are other situations covered under the Cares Act:

— You’re unable to work for lack of child care.

— You’ve had to close or reduce the hours of a business.

— Your self-employment income has been reduced.

— You have a member of your household who has lost a job or income or had an employment offer rescinded, or even experienced a delay in the start date for a job. This might include a spouse, live-in partner or an adult child who has moved back home. For purposes of applying these expanded rules, a member of the individual’s household is someone who shares the individual’s principal residence.

The coronavirus-related relief does not require employers to change the provisions of their retirement plans to allow for the benefits provided by the Cares Act. The IRS also clarified that administrators of retirement plans can establish procedures to identify which withdrawals are considered coronavirus-related.

Even if an employer plan doesn’t consider a distribution to be pandemic-related, individuals can “self-certify” on their federal tax returns that a distribution was qualified, the IRS said.

Here’s some of my additional reporting on retirement withdrawals under the Cares Act

I’m interested in your experiences or concerns about retirement or aging. You can rant or rave. Send your comments to colorofmoney@washpost.com. Please include your name, city and state. In the subject line, put “Retirement Rants and Raves.”