Will Merck Suspend or Reduce 401(k) Matching?

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Merck has taken a hit in terms of 2nd quarter profits after seeing a boost in the first quarter. According to The San Diego Union-Tribune, Merck announced that 2020 prescription drug sales will drop by about $1.7 billion. The pandemic is actually hurting Merck because many patients with chronic conditions have been kept away from their doctors. As a result Merck May need to cut costs in order to deal with the loss of revenue.

Time and time again we have seen that during a recession corporations will decrease or suspend benefits. According to CNBC, 95% of companies offer a company match or some alternate contribution program. However in that same article they stated, “Don’t be surprised if your employer pauses its contributions to your 401(k) plan during the U.S. economic downturn.” This happened during the 2001 recession when General Motors, Charles Schwab, Goodyear Tire & Rubber, & Ford all decreased or suspended their company match programs. We saw this again in 2008, with Forbes reporting that nearly 20% of companies with over 1,000 employees reduced or suspended 401(k) contributions.  Unfortunately, this trend seems to be continuing in the wake of the current recession brought on by the Coronavirus pandemic. According to Market Watch, 16 major companies have suspended their 401(k) matching programs this year including Amtrak, Marriott Vacations Worldwide, and Tenet Health. General Electric & Lockheed Martin also made big news with their announcements to cut benefits in 2019. There have even been rumors on Layoff.com of AT&T considering cutting benefits to hit their target goal of $10 billion in cost cuts.

Read: Merck? How Corporations Protect Their Dividends

Could Merck be the next corporation to suspend or reduce their company match program? What would the consequences be?

Matching 401(k) contributions is one of the most popular benefits Merck offers.  A recent study showed that on average, employees who don’t maximize the company match leave $1,336 of possible retirement money on the table each year. Clearly, a suspension of these benefits would dramatically change many employees’ retirement plans. 

To get a better idea of what an end to 401(k) Matching would look like, let’s take a look at ExxonMobil. ExxonMobil announced recently that they will no longer be matching U.S. employee’s contributions to their retirement savings plans. The suspension of these benefits will officially begin on October 1st, 2020. According to Reuters, ExxonMobil has now experienced, “its first back-to-back quarterly loss in 36 years because of the drop in demand during the novel coronavirus pandemic”. 

Read:Top 10 Articles read by Merck Employees

ExxonMobil has two savings plans available to employees, the first is the U.S. ExxonMobil Savings Plan (EMSP) and the second is the U.S. Supplement Savings Plan (SSP).  The company was matching a 6% minimum employee contribution with 7% of the participant’s pay.  These match programs will be suspended indefinitely beginning on October 1st. 

When benefits are frozen, employees in the mid to late portion of their career are usually hurt the most. If your company match program does end, it’s a good idea to calculate exactly how much this will affect your retirement savings plan. Forbes recommends maintaining your retirement contributions and even increasing them if you have the funds. This can help compensate for the loss of benefits.

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Sources:

Tretina, Kat. “What To Do If Your Employer Suspends 401(k) Matching Contributions.” Forbes, Forbes, 10 Apr. 2020, https://www.forbes.com/sites/advisor/2020/04/10/covid-19-employers-suspending-401k-matching-contributions/#7a48068b285f.

“The Retirement/Transition Guide for Merck Employees.” The Retirement Group, The Retirement Group, 11 Aug. 2020, https://pharma.theretirementgroup.com/merck-educate

Johnson, Linda. “Merck Cuts 2020 Forecasts, Sees Big Pandemic Impact in Q2 – The San Diego Union-Tribune.” San Diego Union-Tribune, San Diego Union-Tribune, 28 Apr. 2020, https://www.sandiegouniontribune.com/business/nation/story/2020-04-28/merck-cuts-2020-forecasts-sees-big-pandemic-impact-in-q2.

O’Brien, Sarah. “401(k)s Contributions from Employers May Drop during Economic Downturn.” CNBC, CNBC, 31 Mar. 2020, https://www.cnbc.com/2020/03/31/employers-may-drop-401k-matches-as-companies-look-to-cut-expenses.html.

Business, Matt Egan, CNN. “Verizon’s Alternative to Layoffs: Retraining 20,000 Workers  – CNN.” CNN, CNN, 14 July 2020, https://www.cnn.com/2020/07/14/business/verizon-jobs-ceo-hans-vestberg/index.html.

Kelly, Jack. “Companies In Their Cost Cutting Are Discriminating Against Older Workers.” Forbes, Forbes, 3 Aug. 2020, 

Noe, Eric. “After Verizon, Are Pension Freezes on the Way? – ABC News.” ABC News, ABC News, 16 Dec. 2005, https://abcnews.go.com/Business/story?id=1378711.

“Pension Lump-Sum Payment Windows Are Back.” The Retirement Group, The Retirement Group, 11 Aug. 2020, https://retirekit.theretirementgroup.com/pension-lump-sum-payment-windows-are-back-e-brochure

Root, Al. “Pension Plans Continue to Fade Away. Why That Brings New Worries.” Barron’s | Financial and Investment News, Barrons, 11 May 2020, https://www.barrons.com/articles/pension-plans-continue-to-fade-away-why-that-brings-new-worries-51589199204.

“AT&T Layoffs – TheLayoff.Com.” TheLayoff.Com, https://www.thelayoff.com/at-and-t. Accessed 13 Aug. 2020.

Waggoner, John. “What to Do If Your Pension Is Frozen.” AARP, 16 Oct. 2019, https://www.aarp.org/retirement/planning-for-retirement/info-2019/pension-plan-freeze.html#:~:text=Other%20major%20companies%20that%20recently,be%20a%20big%20financial%20hit.

Seba, Erwin. “Exxon to Suspend Company Match to Employee Retirement Plans in October: Sources.” Reuters, 4 Aug. 2020.

“U.S. ExxonMobil Savings Plan Changes.” ExxonMobil Employee Connect, https://hr.na.xom.com/us/benefits-policies/investmentindex#a1399111-ffff-4778-970e-cc8bb06ddd8a. Accessed 5 Aug. 2020.