Friday, July 10, 2009

The Debts of the Spenders: The End of Employer 401k Matches?

Translation: The little guy's money rolls in every pay period because ma and pa and Uncle Sam have convinced him that socking away as much as he can every pay period for that small 15% match on his first 6% is the path to wealth.

Goodbye 401(k) Match

By Money Management Executive
July 10, 2009

Whereas in previous recessions, companies that suspended 401(k) matches always brought them back, this time around, consultants to defined contribution plans tell the Associated Press, companies are thinking about doing away with the matches forever or reducing them drastically from the typical 50 cents match for the first 6% an employee puts in.

That said, some companies are looking at tying matches to profits, giving them the flexibility of making no contributions in bad years, or possibly using the money for other benefits, such as healthcare.

It’s easy to understand why large companies would consider eliminating the matches, consultants say. On an individual basis, it may not seem like much; a worker earning $50,000 a year who contributes 6% a year typically receives a $1,500 boost from their employer. For a firm 15,000 employees strong, those matches can amount to $25 million a year.

Fearing mandatory healthcare legislation in Washington, coupled with rising costs, many employers are afraid “about what the rules will be and what’s the cost,” said Mark Ritter, an executive director at Grant Thornton. “The thought is, ‘We may have to rob Peter to pay Paul, and depending on how the healthcare initiative impacts our company, we might have to get the money from the 401(k) match.’”

Employers “realize that the floor can fall out from under them now, and they want to stay loose,” Ritter continued.

Ginny Olsen, a principal with Towers Perrin, agreed: “We have a number of conversations going on at this point. There is a high level of employer interest in making sure they’re spending money for benefits most effectively.”

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