The Massachusetts Securities Division is calling on 401(k) plan administrators to report how many companies have shifted to a lump-sum matching contribution once a year, a change that can undermine worker savings.
The unit sent a letter to the 25 largest providers of 401(k) plans, requesting the number of employers that pay distributions at year-end, when the move was made from more frequent payroll periods and what workers are told about the potential consequences, the division said in a statement Monday.
“Employers are seeing the opportunities they have to take advantage of the flexibility in the system to shortchange participants,” William F. Galvin, Massachusetts secretary of the commonwealth and chief securities regulator, said in an interview. “If employers can get away with making changes that help their bottom line and no one is going to complain about it, they're going to do it.”
AOL Inc. called attention to the practice earlier this month when CEO Tim Armstrong announced plans to make payments in one sum at the end of year, citing spiraling health-care costs. The move touched off a controversy, Mr. Armstrong apologized and the company reversed its decision.
Mr. Galvin said AOL's maneuvering and news reports showing the practice was more widespread influenced the division's decision to open the inquiry.
Companies save money by making lump-sum payments into 401(k) accounts at the end of the year or after, according to the Massachusetts statement. Employees miss out on gains on matching contributions that could accrue during the year and employer contributions may go into a declining market. Workers may also lose out if they leave the company before Dec. 31.
