Employer matches to 401(k) contributions are an important retirement savings incentive. Many employees contributed the exact amount necessary to receive their employer's full match from 2004 to 2007, according to recently released data about Charles Schwab-serviced retirement plans.
As most businesses have flourished over the past four years, more employers began offering 401(k) matches or increased the amounts of matching contributions. The percentage of large employers with more than 2,500 participants in their retirement plans providing matches, for example, jumped from 78 percent in 2004 to 88 percent in 2007, reports Schwab, a company that has 1.3 million retirement plan participants.
The most common 401(k) match is 50 percent of the employee contributions up to 6 percent of pay, which 36 percent of Schwab plans offer. Other employers match more than 6 percent of pay (13 percent of plans), offer varying contribution amounts below 6 percent (48 percent of plans), or match a specific dollar amount (3 percent of plans). Employer contributions climbed about 1 percent from 3.15 percent in 2004 to 4.19 percent in 2007, with small businesses the most likely to step up their employer contributions during the bull market.
Matching Retirement Plan Contributions
|Number of Participants||Level of Employer Match|
|1-99||3.11 percent||4.70 percent|
Source: Charles Schwab
But companies are free to eliminate their 401(k) match anytime, and during financial downturns many companies do. Even Charles Schwab eliminated 401(k) matches for employees during the last recession but then brought them back once its bottom line improved. General Motors was the first major U.S. company to announce the elimination of its 401(k) match during the current financial crisis. And many retirement experts say that other companies are likely to follow suit as economic upheaval continues. Here's a look at how to cope with losing a matching retirement contribution.
Tell us, if your employer stops matching 401(k) contributions, will you stop saving for retirement?