401(k) Matches Linked to Company Performance

Some employers are providing a 401(k) match only when the company does well


The most common way that companies contribute to employee 401(k) accounts is to provide a fixed match. The typical match is 50 cents for each $1 the participant saves up to 6 percent of pay. But an employer is under no obligation to continue contributing the same amount or even to provide a 401(k) match at all.

Over 260 employers have cut or reduced their 401(k) match since the beginning of 2009, according to the Pension Rights Center. Many of these companies have plans to reinstate their 401(k) match when their bottom line improves. About 58 percent of employers that have cut their 401(k) contributions plan to resume them at some point in the future, according to a recent Watson Wyatt survey of human resources executives at U.S. companies. But that doesn’t mean that employees will get the same amount they received before the match was cut.

[Try out these 3 Ways to Get Your 401(k) Back on Track.]

Zep Inc., an Atlanta-based maker of disinfectants, hand cleaners, and deodorants, resumed contributions to employee 401(k) accounts this month, approximately six months after suspending the match. The current match is 25 cents for each dollar the employee contributes up to 6 percent of pay, down from 50 cents before the match was eliminated. The company told The Atlanta Journal-Constitution that it planned to bump the match back up to 50 cents in January.

[See 5 Ways Employers Plan to Change Their 401(k) Plan.]

Other employers are exploring offering a 401(k) match only in years when the company performs well or varying the contribution amount based on profits. While about 70 percent of companies that stopping contributing to employee retirement accounts expect to go back to matching at the same level, Watson Wyatt found, about 25 percent of employers plan to vary their contribution amount based on company profits.

[Find out why Employees Can’t Quantify 401(k) Fees Paid.]

Starbucks, for example, announced in December 2008 that the company contribution to its Future Roast 401(k) Savings Plan would be discretionary, based on the company’s performance over the year. The coffee giant announced on Monday that employees would indeed receive an infusion into their retirement accounts in 2009. “Our progress over these past few months has given us the opportunity to fund the company discretionary match for the 2009 plan year,” said president and CEO Howard Schultz in a statement. The 401(k) match promise came shortly after the Seattle-based company’s third quarter fiscal results indicated net earnings of $151.5 million, compared to a net loss of $6.7 million in the third quarter of 2008. The company partially attributes the turnaround to closing 676 U.S. stores and 89 international locations and other cost saving measures.

Tell us, would you like to work for a company where the 401(k) match fluctuated based on company profits?