One of the easiest ways for companies to cut costs during the height of the recent recession was to reduce or eliminate the matching contribution that they provided to their employees' 401(k) or other retirement plans.
But there is growing evidence that many companies are resuming the generous gesture.
For instance, Starbucks -- a company that struggled throughout the slowdown -- announced in July that it would go back to matching employee contributions. The company provides health insurance and 401(k) options to all employees who work 20 hours a week or more.
"Our progress over these past few months has given us the opportunity to fund the company discretionary match for the 2009 year. Make no mistake, we remain humbled by the uncertain economic environment and know we have a long journey ahead," said CEO Howard Schultz.
Starbucks stock had dropped to as low as $8.27 in early March but had rebounded to above $17 when the company made the announcement about restoring matching contributions.
A recent report by Charles Schwab found that less than one out of 10 companies that use Schwab to administer their employer-sponsored retirement plans stopped making matching contributions. Manufacturing and retail companies were most likely to suspend the match.
"Our plan sponsor clients tell us that the employer match is one of the most important 401(k) plan features for employees, and eliminating it is a last resort even in difficult economic times. Matching employee 401(k) contributions is important in keeping the benefits competitive and driving high participation and savings rates, and employers tell us that these factors lead to a more productive and loyal workforce," said Robyn Alcorta of Charles Schwab.
Of the companies that did cut matching contributions, 24 percent plan to restore the benefit within the next six months and another 24 percent will do so in the next 12 months, according to a survey by consulting company Watson Wyatt.
Even though employees have watched their account balances shrink in the past two years, few have given up on contributing to their retirement accounts. The Investment Company Institute says that 4.6 percent of participants stopped making contributions during the first six months of 2009. That's only slightly higher than 3.7 percent that quit using their 401(k) plan in all of 2008.
"As the markets began to regain their footing in the first half of 2009, plan participants persisted in saving for their retirements. The 401(k) system, with dollar-cost-averaging and the discipline of ongoing contributions, serves investors as they build nest eggs for retirement" said ICI president, Paul Schott Stevens.
The fact that the number of participants that stepped aside from stocks in their 401(k) accounts is a real testament to their long-term investing discipline. 2008 was a tough year with the average retirement account suffering a loss of 30.5 percent, according to ICI. That compares favorably with the benchmark S&P 500 stock index, which declined 37 percent last year.
A separate survey by the ING Institute for Retirement Research found that a third of participants (37 percent) did change their portfolio to reflect a more conservative asset allocation. However, 19 percent saw the sell off in stocks as an opportunity to become more aggressive in their investment strategy.
"The survey underscores one simple fact: the economy and the critics have not discouraged those who are regularly participating in a defined contribution plan. The average American preparing for retirement recognizes the important role their employer-sponsored plan plays in achieving their goals," said Catherine Smith of ING.
And as more and more employers phase back in to matching a portion of their employee contributions, the value of these accounts will play an increasingly important role in determining the lifestyle of future retirees.
Print
E-Mail
