Companies Are Bringing Back The Benefits You've Been Missing

Most of the companies that either suspended or reduced their 401(k) matches during the economic downturn have reinstated them, business consultant Towers Watson said in a study released Wednesday.

An analysis of 260 mid- to large-sized companies shows that 75 per cent of those that took the step to cut costs have restored their match. Among those, about 74 per cent are continuing the match at the previous level.

About 23 per cent brought matches back at a lower rate. Among these companies, the reinstated match was slightly more than half of their original contribution.

Just 3 per cent restored matches at a higher rate; however, in all but one case the increase was associated with the company freezing or ending its pension plan. The higher match was intended to make up for some of the lost pension plan benefits.

“With 401(k) plans now the primary retirement savings vehicle for most workers, it is very encouraging to see that the vast majority of employers have reinstated their matching contributions,” said Robyn Credico, a senior retirement consultant at Towers Watson, in a statement.

Most employers match 50 per cent of employees’ salary deferrals, up to 6 per cent of pay, which amounts to a match of just over 3 per cent of pay.

The median duration for match suspensions was 12 months.

While suspensions occurred from January 2008 through January 2010, about 83 per cent started during the first half of 2009.

About 40 per cent of the companies that reinstated their matching contributions did so by the beginning of 2010. The second-largest wave of reinstatements was early this year.

Similar rounds of 401(k) match suspensions have occurred before, the most recent in 2003 when companies were dealing with the aftermath of the 2001 recession. Matching contributions are a strong enticement to get workers to save money for retirement. Research has shown that fewer workers participate when employers do not offer a match.

Although the number of employers reducing their matches increased during the financial crisis, overall they represent a minority of 401(k) plan sponsors. Another Towers Watson survey indicated about 13 per cent of companies suspended their match during the recent downturn.

Some industries have bounced back faster than others. Companies in manufacturing and health care had the highest match reinstatement rate at 88 per cent.

With the exception of the publishing, financial and entertainment industries, reinstatement rates exceeded 70 per cent for all sectors.

The match reinstatement rate among publishing companies was 62 per cent, and was 53 per cent in the financial sector. Companies in the entertainment industry trailed the pack, with just 50 per cent restoring their matches.

Of the 260 companies surveyed, 29 reduced their match instead of suspending it outright. About a third of them have since reinstated their original match.

Towers Watson said the slow economic recovery prompted some employers to take their time to reinstate the match. Its analysts also believe recent economic turmoil and fears of a double-dip recession could result in more companies suspending the match again.

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