Improved economy may let companies reinstate 401(k) matches
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The Dallas Morning News (MCT) - As more and more employers reduce or eliminate matches to 401(k)s to save money, the question arises: What's the likelihood that they'll bring them back?
Highlights
McClatchy Newspapers (www.mctdirect.com)
4/13/2009 (1 decade ago)
Published in Business & Economics
"Every company that I know of that suspended their match during the last downturn re-established it once their economics improved," said David L. Wray, president of the Profit Sharing/401k Council of America, a nonprofit association of 1,200 companies that have 401(k) plans.
"Companies establish 401(k) plans to build a sense of partnership. The company contribution is a tangible expression of that partnership," he said.
I hope he's right because employer matches to workers' 401(k) contributions have been significantly eroded by the current economic crisis.
Thirty-four percent of U.S. employers have reduced or eliminated matching contributions to their defined-contribution retirement plans, such as 401(k)s, since January 2008, according to a report last month by the Spectrem Group, a consulting firm.
Over the next year, 29 percent of companies intend to reduce or eliminate matching contributions, it said.
"This, combined with a decline in deferral rates (the percentage of their earnings that employees contribute), raises questions about the ability of the current generation of working Americans to adequately fund their retirements," said George H. Walper Jr., president of Spectrem Group.
Twenty percent of employees participating in defined-contribution plans have cut the percentage of earnings they contribute to the plans, with another 5 percent intending to do so over the next 12 months, the company said.
This isn't good. With traditional pension plans vanishing, the onus is on employees more than ever to save money for retirement.
Employers should do their part and restore their matching contributions when the economy improves.
"Most of the employers have said it's a temporary suspension, and if I look at history _ when this happened around 2003 _ every employer which suspended (or reduced) their match reinstated it within a year or two," said Robyn Credico, national director of defined-contribution consulting at Watson Wyatt Worldwide.
However, she said, "when employers can afford to re-establish the match depends on how long it takes the current environment to improve."
Employer matches give employees more incentive to participate in a 401(k) because if they don't, they're leaving free money on the table.
And workers can't afford to do that, considering that 401(k)s have become the primary retirement savings vehicle for most people.
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© 2009, The Dallas Morning News.
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