AARP Reinstates 401(k) Match

Many employers will soon resume retirement account contributions

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AARP will resume matching 401(k) contributions for employees beginning on January 1. The giant advocacy group, which represents the interests of older Americans, has saved $7 million since suspending the retirement benefit in March.

“It was a last resort,” says Ellie Hollander, an AARP executive vice president, about the decision to eliminate retirement contributions. “We had healthcare reform coming up. We wanted to make sure that we had the resources to fight the good fight that we have.”

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Most employees continued to save for retirement in the 401(k) after the match was suspended, AARP says. AARP also provides a traditional pension to employees that was not changed this year. “The only reason we felt like we could live with that is because we funded a defined benefit plan and that was not touched,” says Hollander. The nonprofit will now match 100 percent of employee contributions up to 3 percent of pay and then 50 percent of 401(k) deposits on the next 2 percent of compensation, the same amount as before the suspension.

A growing number of employers plan to reinstate 401(k) matches that were cut shortly after the financial crisis began. American Express intends to restart company contributions to retirement accounts in January. And Motorola says it will reestablish matching funds at some point in 2010. About 35 percent of large employers that suspended their match plan to resume employer contributions within 6 months, up from just 5 percent in June, according to a recent Watson Wyatt survey.

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Black & Decker will restore retirement contributions even sooner, on December 1. The power tool maker will return the match to its prior level, which was 50 percent of 401(k) contributions up to 6 percent of pay. Other employers are exploring more flexible ways to resume their match. “Some companies are actually thinking of reinstating the match contingent on the profits of the company,” says Robyn Credico, Watson Wyatt's director of defined contribution consulting. “That way every year they can decide whether to fund the match.”

[Find out How 401(k) Match Formulas May Work Differently in 2010.]