The COVID-19 crisis has created a situation where tens of millions of American workers are in danger of seeing their retirement savings depleted. In addition to the awful death toll, the outbreak has led to extreme disruption in daily life, financial markets, and the economy — especially employment. As of May 28, more than 40 million Americans filed claims for unemployment benefits in the previous 10 weeks. This deadly combination of 1) levels of unemployment not seen since the Great Depression, 2) a significant market downturn, and 3) the ongoing plan-to-plan portability gap, has serious implications for these Americans’ retirement outcomes.
On top of that, the companies forced to lay off employees in recent weeks could be vulnerable to liability since, as fiduciaries, they have a duty to act in the best interests of participants. Years from now, terminated employees who discover they have less income in retirement due to an automatic rollover or automatic cash-out, which they weren’t aware of, could choose to sue.
