Defined Contribution

Freezing or Suspending Matching Contributions: Requirements and Timing

Freezing or Suspending Matching Contributions: Requirements and Timing
clock

DC plan sponsors hit hard by the recent economic environment are evaluating if reducing or suspending matching contributions is prudent. The presence of an employer match both supplements and encourages employee retirement savings.

Background

Plan sponsors have been more likely to decrease or suspend matching contributions during periods of economic hardship. This was seen in the 2001 recession and during the Global Financial Crisis (GFC). The Center for Retirement Research at Boston College estimated that almost 5% of plan participants were impacted by reduced or suspended matching contributions between January 2008 and November 2009. Another industry survey focused on large plans found that 11% of surveyed employers, with average assets of $580 million, suspended their matching contributions during the GFC.

Callan is conducting a survey to understand what actions plan sponsors are taking or considering around matching contributions and new CARES Act provisions. Click here to participate.

The decision to freeze or suspend a contribution may be complicated by whether it is a safe harbor or a non-safe harbor match. Safe harbor plans can reduce or suspend employer contributions if the safe harbor notice previously distributed indicated that such contributions could be reduced or suspended, or the employer is operating at an economic loss for the plan year. Safe harbor plans must provide notice 30 to 60 days in advance. Also, the plan cannot make the change if it is three months prior to a plan year end.

Non-safe harbor plans can suspend the match generally, but they should refer to how the plan document is written and how much discretion is given. The plan document may describe a set formula or timing, which means the plan sponsor would be required to amend the plan document and update the summary plan description and/or summary of material modifications. However, if the plan document grants discretion, the employer may have greater ability to make changes without a formal plan amendment.

There is some evidence that suspending or decreasing the matching contribution may reduce plan participation and savings rates. However, the prevalence of automatic enrollment has increased dramatically over time and may mute the impact on participation.

Bottom Line

Plan sponsors exploring contribution reductions should consider the flexibility of the plan design and plan document. Other important considerations are employee perception and retirement readiness.

Posted by

Share
Share on facebook
Share on twitter
Share on linkedin
Related Posts
Operations

What DC Plan Sponsors Should Know About Recent Litigation Trends: Part 2

Jana Steele
Jana Steele reviews key themes to emerge from our analysis of DC plan litigation from 2019-2022.
Operations

What DC Plan Sponsors Should Know About Recent Litigation Trends: Part 1

Jana Steele
In the first of two blog posts, Jana Steele provides an overview of DC plan litigation from 2019-2022.
Operations

Financial Wellness: Is It the Right Prescription for Your DC Plan?

Jana Steele
Jana Steele provides a summary of her recent white paper on financial wellness options for DC plans.
Operations

The Supreme Court Weighs in on Northwestern DC Case

Jana Steele
Jana Steele explains the implications of the Supreme Court's Northwestern ruling for DC plan sponsors.
Operations

DOL Shifts Tone on Private Equity in DC Plans

Patrick Wisdom
Patrick Wisdom analyzes the new DOL guidance on the role of private equity in DC plans.
Operations

DOL Updates the Fiduciary Rule (Again)

Jana Steele
Jana Steele explains what the latest update to the fiduciary rule means for DC plan sponsors.
Operations

Watch What You Say: Employee Benefit Claims

Jana Steele
Jana Steele explains how a new EBSA letter on informational calls with plan participants affects sponsors.
Operations

Will Boring Still Be Beautiful?

A simple, "boring," glidepath beat a diversified one over the last 10 years. Will that continue?
Operations

IRS Announces Updated Retirement Plan Limits for 2021

Jamie McAllister
The IRS announced the updated retirement plan limits for 2021.
Operations

DOL Proposes Tightened Proxy Voting Guidelines

Patrick Wisdom
The department’s new proposal dovetails with SEC guidance finalized in 2020 and would create a refined set of circumstances in which plan fiduciarie...

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.