Companies are slowly starting to reinstate their 401(k) matches, balancing the prospect of economic recovery with their ability to pay for an important employee benefit.
Corporate executives hope to restore the suspended or reduced matches as quickly as possible to raise morale, encourage greater retirement savings and offer a competitive advantage against their peers.
Reinstating the match was “both a financial and morale decision,” said Richard M. Popp, director of employee benefits at Ford Motor Co., Dearborn, Mich.
Bringing back the match also contained “a moral element because we want to encourage savings by our employees,” said Mr. Popp, whose company reinstated the match for its $6 billion salaried employees' 401(k) plan in January after a 12-month suspension.
“It's a pretty tough decision to get rid of the corporate match,” said Lori Lucas, executive vice president and defined contribution practice leader at Callan Associates Inc., San Francisco. “The match is an important anchor.” Bringing back the match takes on greater importance as companies “start transitioning from layoff mode to retaining talent,” she added.
Dean Kohmann, vice president of 401(k) services at Charles Schwab Corp., San Francisco, was more emphatic: “It is the most important feature in a 401(k) plan.”
As the economy improves, some plan sponsors have reinstated matches at previous levels, some have made downward adjustments and some are evaluating reinstatement — but haven't acted.
“Certainly, if the economy weakens, the resolution of plan sponsors to reinstate the employer matching contribution might also waver,” Ms. Lucas said. “However, my experience is that plan sponsors who begin to get the wheels in motion to reinstate the match are highly committed.”
The Pension Rights Center, Washington, keeps a running count of employers that reduce, suspend and/or reinstate corporate matches. Since October 2008, the center counted 320 match suspensions and reductions, of which 36 have been reinstated. (The center acknowledges its list may not be comprehensive because it relies on news releases, news accounts or other sources.)
According to the PRC, companies that have reinstated their matches recently include Regions Financial Corp., FedEx Corp., 7-Eleven Inc. and Eastman Kodak Co., as well Black & Decker Corp. and Stanley Works Co. which recently combined to form Stanley Black & Decker Inc. AARP also reinstated its match.
Company executives like the 401(k) match because they believe it affects employee savings behavior. Results of several studies show “the presence of a match increases participation by five to 10 percentage points,” according to a February report by Boston College's Center for Retirement Research. “Several studies have also documented a positive relationship between the level of the employer match and the 401(k) participation.”