More companies that cut the contributions they made to employees’ 401(k) retirement plans earlier this year are reversing course as their businesses rebound and a Covid-19 vaccine is on the horizon.

Consider Quest Diagnostics Inc. The lab testing company suspended the matching contributions it made to its $4.59 billion 401(k) plan in April, as part of a cost-cutting initiative due to reductions in testing volumes.

But when patients returned to medical appointments this summer and Quest’s business recovered, it restarted those contributions on Aug. 23, four months sooner than planned.

“We reinstated to normalcy,” Chief Financial Officer Mark Guinan said on a recent call with Wall Street analysts.

Quest isn’t alone in restoring the status quo for employees.

T. Rowe Price Group Inc. said 9% of the retirement plans it administers with assets above $25 million suspended or reduced their 401(k) matching contributions between mid-March and Oct. 31. One-third of those have either already reinstated the payments or plan to do so by the end of this month.

At Ascensus, a record-keeper, 21% of the employers that use its 401(k) administration services suspended their 401(k) contributions between March 1 and Sept. 30, and two-thirds of those have since restarted them.

Generally, “they are going back to what they had before,” said Pam Sandelin, vice president of insights and analytics at Ascensus. Employers “are trying to help employees navigate the uncertainty of Covid” and keep their retirement savings on track, she said.

In contrast to the 2008-09 financial crisis, fewer companies have reduced or suspended their matching contributions this time.

During the last recession, the low point for employer-matching contributions was in 2010, months after the economic recovery took hold in mid-2009, according to Vanguard Group Inc., record-keeper for about 1,500 401(k)-type plans. Among companies that used Vanguard’s 401(k) services, 12% provided no employer 401(k) contribution in 2010, up from 6% in 2008.

In the years since, many U.S. companies have raised contributions to employees’ 401(k) accounts, to attract and retain workers and compensate for the loss of traditional pensions.

This year 7% of Vanguard’s clients have announced plans to suspend their company matches. At the end of 2019, 4% offered no employer contribution.

With vaccines on the horizon, the worst is likely over, said Alicia Munnell, an economist and director of Boston College’s Center for Retirement Research. “Employers with 401(k) plans really aren’t under so much pressure that they have needed to reduce or eliminate the match this time around,” she said.

Robyn Credico, defined contribution consulting leader at Willis Towers Watson, WLTW +0.33% a consulting and risk-management firm, said government-stimulus money, including the Paycheck Protection Program for businesses, helped most companies ride out the storm without touching their 401(k) plans. Some businesses were aided as some states didn’t fully shut down.

A wave of employers cut their 401(k) matches in the first half of the year. But since economic growth rebounded at an annual rate of 33.1% in the third quarter, “very few” of Willis Towers Watson’s clients, which tend to be large employers, have initiated suspensions, Ms. Credico said.

One reason employers are quickly reinstating 401(k) matches is greater awareness of the long-term costs associated with delayed retirements, including higher payroll and health-insurance expenses.

Delayed retirement is “pretty expensive for companies,” said Ms. Credico.

Companies aren’t required to make 401(k) contributions, but most do, according to Vanguard. The most common approach among companies that use Vanguard’s 401(k) services is to match half of the amount workers put into their accounts, up to 6% of pay.

In 401(k) plans administered by the record-keeper Alight Solutions, the average account contribution was $10,092 in 2019. Employers put in 35% of that total, or $3,587. Because “a 35% reduction in contributions may be hard for employees to make up,” some may have to work longer, said Rob Austin, director of research at Alight.

Only 2% of the large companies that use Alight to administer their 401(k) plans have either reduced or suspended their matching so far this year. The ones that did so “got hit really hard” by the shutdowns, Mr. Austin said. They include companies in the retail, hospitality and travel industries.

Arconic Corp. , a manufacturer of metals and products for the transportation, aerospace and construction industries, announced “aggressive actions” on April 8 to save $150 million as the coronavirus spread, according to a press release. Among other steps, the Pittsburgh-based company said it would lower its chief executive’s salary by 30%; reduce its salaried workforce, targeting a 10% cut; and suspend matching contributions for salaried employees in its $1.4 billion 401(k) plan.

On Sept. 1, Arconic restored the pay and benefit cuts to previous levels.

“The steps we took to strengthen our financial position combined with the strong recovery of automotive demand and our employees’ hard work enabled us to end the temporary salary reductions and reinstate the 401k match,” Chief Executive Tim Myers said in a press release.

Some companies have announced plans to reinstate matching programs in the new year.

Hewlett Packard Enterprise Co., created in the 2015 split of Hewlett-Packard Co., announced cost-cutting measures in May, including suspending its 401(k) match from July 1 to Dec. 31 for the nearly 16,500 savers in its $8.5 billion plan. On Jan. 1, the company plans to reinstate its 401(k) match at the prior level of 100% of the amount workers put into their accounts, up to 4% of pay.

“We are restoring the match because we made a commitment to our team members, who have gone above and beyond to help our business thrive in spite of the unprecedented challenges presented by the pandemic,” a spokesman said in an email. “We firmly believe in the importance of this benefit to team member well-being.”

Source: The Wall Street Journal, December 4, 2020 | Anne Tergesen