The 401(K) Match May Be Returning

April 7, 2010

401kWhile companies have responded to the economic environment by cutting back on perks such as stock options, paid family leave and business class airfare, the 401(k) matching contribution could be returning.

According to a recent survey by Fidelity Investments, 70 percent of companies with 5,000 or more employees had reinstated their 401(k) match or planned to do so within the next 12 months. Companies with 500 or less employees also planned to do the same, but far less: Just 36 percent said they had reinstated or would reinstate the match during the same time period.

"As the economy begins to improve, employers large and small are bringing back their 401(k) matching programs," said James M. MacDonald, president of Workplace Investing at Fidelity Investments, in a statement. "Our experience has shown that the presence of a match has a significant impact on employee participation levels, which makes these programs critical to getting workers back on track with saving for their retirement."

Similarly, The Wall Street Journal reports that according to a February survey by benefits consulting firm Hewitt Associates, 80 percent of 162 mid- to large-sized U.S. companies planned to restore matching contributions in 2010. In addition, the Center for Retirement Research at Boston College found that 24 percent of 2.4 million employees who had their matching contributions decrease since 2008 saw them reinstated at least partially.

But not everyone is so optimistic. A new survey has found that 26 percent of employers decreased their matching contributions or eliminated it entirely in 2009, and 53 percent haven't decided whether to return to previous levels. A third of the companies, meanwhile, have no plans to reinstate matching contributions.

The Retirement Plan Survey, which was conducted by Grant Thornton LLP, Drinker Biddle & Reath LLP and Plan Sponsor Advisors, also found that 33 percent of plan participants had decreased their contributions, and 34 percent had increased hardship withdrawals in 2009.

"The recent economic challenges have certainly affected the funding--including employer and employee dollars--of defined contribution plans," noted Debbie Smith, an employee benefits practice partner with Grant Thornton LLP, in a statement. "While most are taking a wait-and-see approach in 2010 with respect to employer contributions, the fact that one fourth of employers have taken significant measures to adjust contribution plans is quite telling of the times."

Compiled by Yaffa Klugerman

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