Employers Restore 401(k) Matches

Companies that suspended 401(k) contributions during the recession have largely reinstated them.

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The majority of companies that suspended their 401(k) match during the recession have since restored them, according to a new Towers Watson report.

The analysis of 260 companies that reduced or suspended their employer 401(k) contributions in January 2008 or later found that three quarters have since reinstated their match. However, a quarter of the companies surveyed still have not resumed providing a 401(k) match to employees.

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Most companies that brought back their 401(k) match (74 percent) now provide the same level of matching funds they did before the suspension. The most frequent match formula is 50 cents for each dollar contributed up to 6 percent of pay. However, 23 percent of the employers reinstated their match at a reduced rate, averaging slightly more than half of their original 401(k) contribution.

A small minority (3 percent) of companies reinstated a higher match, providing an average of 1.4 percentage points more than before the suspension. However, in all but one of these cases, the increase in the 401(k) match was associated with the freezing or closing of a traditional pension plan. “The higher match was intended to make up for some of the lost defined benefit plan benefits,” Towers Watson found.

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A few of the employers surveyed (29 companies) reduced their 401(k) match by an average of 2.19 percentage points rather than suspending it outright. Only 9 of these companies have resumed their previous matching level.

The proportion of employers that have reinstituted 401(k) contributions varies considerably by industry. The manufacturing and health care industries had the highest 401(k) match reinstatement rate of 88 percent. The industries least likely to resume their 401(k) match where entertainment (50 percent), financial services (53 percent), and publishing (62 percent).

However, other research is far less optimistic about the return of 401(k) matches. The Pension Rights Center, which maintains a list of over 300 employers that have reduced or suspended their 401(k) match since June 2008, says only a small fraction of employers have publically announced plans to reinstate their 401(k) match. “Our list certainly doesn’t reflect that high a percentage of reinstatements. Far from it, in fact,” says Nancy Hwa, a spokesperson for the Pension Rights Center.

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The median duration of the 401(k) match suspensions was 12 months, Towers Watson found. Most of the suspensions and reductions of 401(k) matches commenced between January and July 2009, but some continued through May 2010. Almost half of the cuts took place in either January or April 2009. “Many companies implemented their cutbacks in January 2009, which might have triggered a domino effect that rippled through the first half of 2009,” according to the study. “The increase in April is possibly from companies timing their changes to coincide with the start of a new fiscal quarter.” The largest waves of 401(k) reinstatements were in January 2010 and January 2011.

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