General Motors Corp. will suspend the company's contributions to its salaried employees' 401(k) plan, while New York Times Co. will almost double the contribution level to its non-union 401(k) while reducing other non-union retirement benefits.
The moves are designed to cut costs. More companies could follow either of their leads if the economic downturn continues.
GM is suspending the employer match to its $11.8 billion 401(k) plan as of Nov. 1 to conserve cash in a tough economy, said Tom Wilkinson, director-news relations. When the company becomes more profitable, we will restore the contribution, he said.
GM's match is 100% of employee contributions up to 4%. The company previously suspended its contributions for the 2006 calendar year. The salaried plan covers 32,000 employees, Mr. Wilkinson said.
GM contributed $82 million to the plan last year, the filing showed.
The GM suspension does not affect its $8.7 billion 401(k) plan for union employees, Mr. Wilkinson said. That plan does not have a company match.
Separately, Stephen P. Utkus, principal, Vanguard Center for Retirement Research, Vanguard Group, Malvern, Pa., said fewer than 1% of Vanguard's clients have recently suspended contributions to their 401(k) or profit-sharing plans.
Diane Garnick, investment strategist at Invesco Ltd., New York, said, I am very concerned that GM incorporated this message into their earnings announcement. Last week 31% of the S&P 500 companies reported earnings, Ms. Garnick said, noting, 100% of those companies will be looking for ways to reduce costs, enabling them to provide strong guidance for next (quarter's) outlook. So far GM is the only company I know of (to cut 401(k) contributions), but I wouldn't be surprised if more companies follow suit.
Lori Lucas, defined contribution practice leader at Callan Associates Inc., San Francisco, said: It is not uncommon for cyclical industries (airlines, financials, automobile) to suspend their 401(k) company match. Unfortunately for employees who are already losing money, they are now forced to save more to make up for this loss. These are extraordinary times that do require certain measures.
Eliminating the 401(k) match is on the table for a lot companies, Ms. Lucas said. But it is one of the last resorts taken.
David L. Wray, president of the Profit Sharing/401(k) Council of America, Chicago, said: I am not sure who the next company to do this would be. Ford (Motor Co.) and (Charles) Schwab Corp. have done it before both did resume making the match contribution. It is rare for companies to suspend the fixed match. The choice is either layoffs or suspend the match, and my guess is companies do not want to lay off people.
Ford Motor officials don't speculate on potential benefit changes, said Marcey Evans, corporate news manager of the Dearborn, Mich., company. Ford matches 100% up to 4% of contributions by non-union participants, Ms. Evans said. Ford, under its labor agreement, provides no match for its union 401(k), she added. A number of years ago Ford suspended the company's contributions to the non-union 401(k) and then restored them, Ms. Evans said.
AMR Corp.'s American Airlines Inc. currently has no plans to discontinue its 401(k) company matching contributions, Mary Sanderson, American Airlines director- corporate communications and advertising, said in a statement. We have a long track record of keeping our commitments.
The New York Times Co., meanwhile, will reduce the benefit accrual formula for its non-union defined benefit plan and increase contributions to its non-union 401(k) plan, effective Jan. 1, according to an Oct. 23 filing with the SEC.
Also, retiree medical benefits will be eliminated for employees who leave after March 1, 2009. The company has $229 million in retiree medical obligations, all unfunded.
New York Times expects to save about $15 million from the moves, while reducing its pension obligation by $70 million and its retiree medical obligation by $20 million.
The company's defined benefit plan was underfunded with $1.54 billion in assets and $1.59 billion in liabilities as of Dec. 31. The company contributed $11.9 million to the plan last year, according to another SEC filing.
Under the New York Times' new 401(k) formula, the maximum the company will match will be about 83% of the 6% participant contribution. The current company match is 50% on the 6%, said Abbe Ruttenberg Serphos, director-public relations, New York Times.
The company contributed $14.8 million to the 401(k) last year, according to an SEC filing.
Officials declined to disclosure the size, but the Money Market Directory said the plan had $511 million as of December 2005.