Citgo Petroleum Corp has reportedly stopped contributing to employee 401(k) funds and will soon begin slashing their salaries as well. The news comes from insiders at the company who spoke to Reuters this week, revealing that the company's contributions to their retirement plans stopped on Nov. 1. The salary reductions are scheduled to begin on Jan. 1 of 2021.
Reuters obtained a message sent to Citgo employees, explaining the changes and claiming that they were based on the coronavirus pandemic. It read: "The refining industry has been severely affected by the pandemic," noting that fuel demand is down by more than 10 percent in 2020 since so many Americans are staying at home more often. Citgo issued a public statement on Friday after news of the salary cuts began to circulate, saying that employees will not be the only ones impacted.
Citgo's statement said that the company "continues to take aggressive steps to manage costs to navigate the challenging environment, including temporarily suspending employer contributions to the company's 401(k) retirement plan and a 10 percent reduction in salaries (reduction is applied on a tiered earning level)."
According to Reuters, fuel demand has recovered since its low point in the spring. Still, with another wave of coronavirus infections hitting the U.S. and Europe, Citgo may be preparing for another drought. Fuel consumption is expected to drop in the coming weeks, as many people return to quarantine-like conditions.
Citgo previously contributed 3 percent of employees' salaries to their 401(k) plans automatically and matched an additional 6 percent of employee contributions. Salaries of $100,000 or more will reportedly be reduced by 10 percent, and salaries between $50,00 and $100,00 will be reduced on a sliding scale from 1 percent to 10 percent. There will also be no bonuses for the year.
"Key drivers for our business - product demand, refining margins and refinery utilization – are all below acceptable levels," Citgo's message said. "As a result, we must make additional cost reductions to protect our liquidity until the economy and industry improves."
Four oil refineries in the U.S. have shut down so far in 2020 due to the lack of demand for more fuel. However, the recovery for the industry was fast — in August, refinery utilization was at 79 percent of national capacity, according to the U.S. Energy Information Administration. Like so many other parts of the economy, the oil industry is counting on a coronavirus vaccine to get them back on track.