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More and more companies are reinstating suspended 401(k) matches.
Alix Stuart, CFO.com | US
December 4, 2009
As the holidays approach, a growing number of companies say they will soon put more money into workers' retirement stockings.
In recent weeks a number of large companies, including JP Morgan Chase, Federal Express, and Black & Decker, have announced plans to reinstate suspended 401(k) matches, and two surveys suggest that more such announcements are to come. About 35% of companies that cut contributions plan to resume making them in the next six months, according to a recent survey by Watson Wyatt. Fidelity, a major provider of 401(k) services, reports that 27% of its customers who have cut contributions will reverse course in 2010, with the percentage rising to 44% for larger employers.
"Most HR people [say that] offering a 401(k) with a match is really important from a competitive perspective when they're recruiting people," says Robyn Credico, national director of defined-contribution consulting for Watson Wyatt.
Most companies — 70% — are going to reinstate their matches to previous levels, while 13% will offer smaller matches, says Credico. Notably, 17% plan to let the size of their match vary with the company's profitability, a strategy that only a few companies previously used. "There's a lot more interest in that now," says Credico, "because it's easier to say 'The company didn't do that well this year, so the match is lower' versus 'We have to suspend the match, and we can't tell you when we're going to reinstate it.'"
The number of companies that have actually stopped or reduced such retirement-fund contributions varies widely from survey to survey. Watson Wyatt found that 25% of the large companies it surveyed had taken such a step, while Fidelity says only 8% of its clients did so. The Pension Rights Center counts more than 300 organizations, including nonprofits and government organizations, that have reduced or suspended their programs since the middle of 2008.
At least four organizations, including Chordiant Software and Anchor BanCorp Wisconsin, have announced in the past month that they would be suspending 401(k) matches. Nancy Hwa, director of communications for the Pension Rights Center, says she wouldn't be surprised to see more nonprofits follow suit next year, as more of their benefactors face economic difficulty.
Employer contributions may have a significant effect on employees' overall savings rates. According to Fidelity's first-quarter data, employees at companies that had suspended their matches were twice as likely to decrease their own 401(k) contributions compared with employees at companies that hadn't.
At least for now, the stock market is cooperating to help make the investment an attractive one. The average 401(k) balance rose nearly 13%, to $60,700, between the end of the second and third quarters, according to Fidelity.