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Here's How COVID-19 Could Hurt 401(k)s in a Very Big Way

By Maurie Backman – Apr 8, 2020 at 7:22AM

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The ongoing crisis could make it harder to save for retirement.

COVID-19 has hurt a lot of companies' bottom lines, and it's clear that the crisis is far from over. Small businesses in particular have been forced to shut down and risk revenue losses they may never recover from. But larger employers aren't immune to the economic fallout of COVID-19, and many are looking for ways to conserve cash as the pandemic plays out. That could mean cutting staff or scaling back on benefits -- and that may include your 401(k) match.

Will COVID-19 rob you of retirement money?

It's common practice for companies that sponsor 401(k)s to also match employee contributions to varying degrees. But as employers aim to cut costs in the coming weeks or months, some may have no choice but to eliminate 401(k) matching contributions, either temporarily or on a longer-term basis.

401(k) statement showing matching and total contributions


In fact, a large number of employers cut back on 401(k) matches during the Great Recession a little over a decade ago -- largely to scale back on expenses at a time when the economy wasn't in good shape. And while many companies have since resumed the practice of 401(k) matching, especially in what was, prior to the COVID-19 outbreak, a competitive job market, those who rely on that extra retirement money may have to accept that for at least the time being, they'll be funding their nest eggs on their own.

Should you stop contributing to your 401(k) if your match goes away?

Employees are often advised to contribute as much as possible to their 401(k)s, but also, at the very least, to put in enough to snag their full employer match. Failing to do so is akin to passing up free money. But now that employers may start cutting back on or eliminating matches, funding those accounts doesn't hold the same appeal.

Still, if you're able to keep putting money into your 401(k), so do. When it comes to growing wealth in one of these accounts, your greatest weapon is time, and missing out on even a year or two of contributions could cause you to fall short financially later in life.

Currently, workers under 50 can contribute up to $19,500 to a 401(k), while those 50 and over get a $6,500 catch-up that leaves them with a total limit of $26,000. Most people can't afford to max out a 401(k), and most employers don't match 100% of contributions. But if your company match does go away and you're able to ramp up enough to make up for it, you'll be doing your part to stay on track for retirement.

Unfortunately, it's too soon to tell how long COVID-19 will stick around as a major threat, and to what extent it will damage the U.S. economy on a long-term basis. While losing your 401(k) match because of it may be an unfortunate side effect, just remember -- given the number of people who are out of a job right now, the fact that you have the ability to retain your paycheck and keep funding that account yourself is something to be thankful for.

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