"This was a way of providing competitive and affordable benefits while at the same time containing costs," explains John Hourigan, a spokesman at Dayton, Ohio-based NCR. The new measures, he says, are expected to reduce the company's U.S. pension expenses to zero by 2007.
Ultimately the minimum match should be what is required to entice employees to enroll in their 401(k) plans. "Participation rates are about 10 percent higher for companies that offer a match," says Robert Liberto, vice president of Segal Advisors, an investment consulting firm in New York.
Although there's good evidence that a match increases participation in a plan, the role of the size of the match is less evident, according to Michael Weddell, a retirement consultant in the Southfield, Michigan, offices of Watson Wyatt Worldwide. "The research is not quite clear that having a more-generous match is better than having a less-generous match," he says. "You get the bulk of participation by having any match at all. If you increase the match, it doesn't seem to necessarily lead to higher participation rates."
Whatever method a company uses to determine its match, people need to be educated about the match formula when they're enrolled in a 401(k) plan, advises Weddell. "Employees should have a clear line of sight so they know what the incentive is for investing in the plan," he says.
Unfortunately for many workers, no amount of education will be able to clear the gathering clouds in their sight lines. "It's beginning to dawn on an awful lot of people that they don't have enough retirement income," says William Slater, vice president for retirement services at MetLife. "The savings rate, which has historically never been where it should be in this country, is going to directly impact those people when they hit retirement."
"Employees are absolutely not contributing enough to their 401(k) plans," adds Patricia Pou, a principal at Mercer HR Consulting. "Even employees who can afford it don't realize that they should be saving throughout their career, not at the end when retirement is in sight."
John P. Mello Jr. is a freelance writer based in Woonsocket, Rhode Island.
| Mix and Match How companies contribute to 401(k) plans. |
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| 1999 | 2001 | 2003 | |
| Fixed match (e.g., 50 cents per $1 up to 6% of pay) | 72% | 72% | 73% |
| Graded match (e.g., $1 per $1 on first 3%, 50 cents per $1 on next 3%) | 13% | 17% | 15% |
| Discretionary profit-sharing nonmatching contribution | 15% | 16% | 18% |
| Discretionary profit-sharing matching contribution | 5% | 10% | 7% |
| Match based on length of employee's service | 5% | 5% | 5% |
| Match based on company performance | 10% | 5% | 5% |
| Other contributions (e.g., age-based match) | 6% | 6% | 4% |
| No employer contribution | 3% | 2% | 4% |
| Source: Hewitt Associates 2003 survey of 489 large employers | |||
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