401(k) Match Comes Out of Retirement

But a 401(k) match alone won’t get you to a secure retirement, consultant says

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Kodak, FedEx, and Ford announced this week that they will resume their 401(k) matches in 2010. All three firms suspended employer contributions to retirement accounts in December 2008. The companies join American Express, Motorola, AARP, and Black and Decker in recently restarting contributions to 401(k)s.

[See 401(k) Matches Make a Comeback.]

A slew of recent research has found that many employers who suspended their 401(k) match plan to bring it back in 2010. Among Fidelity-administered 401(k) plans, 27 percent of employers that cut their contributions have already resumed the match or plan to reinstate it in 2010. A Towers Perrin online survey of 333 human resources executives found that 35 percent are planning to bring back their suspended 401(k) contributions next year. Consulting firm Watson Wyatt also puts the percentage at 35 percent over the next six months. And a Profit Sharing/401k Council of America survey of 508 plan sponsors found that almost half (47 percent) of those who cut the match have restored it or plan to in the first quarter of 2010.

At least 305 employers have suspended their 401(k) match since December 2008, according to a list maintained by the Pension Rights Center. But only 16 of those companies have publicly announced that the match will be resumed, or about 5 percent.

[See Average 401(k) Balance Rebounds.]

The return of 401(k) matches will certainly help workers to save more. But maximizing your 401(k) match alone won’t get you to a secure retirement, says Joseph Hessenthaler, a senior retirement consultant for Towers Perrin. “If people have only a 401(k) plan and if they really want to have what most of us hope is a decent retirement you really need to be getting people to save 10 to 15 percent of pay a year,” he says. The most common 401(k) match provided by employers is 50 cents for each dollar the worker contributes up to 6 percent of pay. A worker who saves only enough to get the full match would be tucking away 9 percent of pay each year, just short of Hessenthaler’s recommendation. “The plans can do the job but they are not doing the real job because of the amount of money going in,” he says. “But no one ever asks if it will be adequate or not, they ask if it’s competitive.”

[See After a 401(k) Match is Cut, Do Workers Stop Saving For Retirement?]

Hessenthaler plans to retire from Towers Perrin on January 4. “I have a pension plan, that’s why I can retire,” he says. “If it wasn’t for that I would be hanging on by my fingernails.”