Most 401(k) Matches Reinstated
Life + Money

Most 401(k) Matches Reinstated

Most of the companies that either suspended or reduced their 401(k) matches during the economic downturn have reinstated them, business consultant Towers Watson said in a study released Wednesday.

An analysis of 260 mid- to large-sized companies shows that 75 percent of those that took the step to cut costs have restored their match. Among those, about 74 percent are continuing the match at the previous level.

About 23 percent brought matches back at a lower rate. Among these companies, the reinstated match was slightly more than half of their original contribution.

Just 3 percent restored matches at a higher rate; however, in all but one case the increase was associated with the company freezing or ending its pension plan. The higher match was intended to make up for some of the lost pension plan benefits.

"With 401(k) plans now the primary retirement savings vehicle for most workers, it is very encouraging to see that the vast majority of employers have reinstated their matching contributions," said Robyn Credico, a senior retirement consultant at Towers Watson, in a statement.

Most employers match 50 percent of employees' salary deferrals, up to 6 percent of pay, which amounts to a match of just over 3 percent of pay.

The median duration for match suspensions was 12 months. While suspensions occurred from January 2008 through January 2010, about 83 percent started during the first half of 2009.

About 40 percent of the companies that reinstated their matching contributions did so by the beginning of 2010. The second-largest wave of reinstatements was early this year.

Similar rounds of 401(k) match suspensions have occurred before, the most recent in 2003 when companies were dealing with the aftermath of the 2001 recession. Matching contributions are a strong enticement to get workers to save money for retirement. Research has shown that fewer workers participate when employers do not offer a match.

Although the number of employers reducing their matches increased during the financial crisis, overall they represent a minority of 401(k) plan sponsors. Another Towers Watson survey indicated about 13 percent of companies suspended their match during the recent downturn.
Some industries have bounced back faster than others. Companies in manufacturing and health care had the highest match reinstatement rate at 88 percent.

With the exception of the publishing, financial and entertainment industries, reinstatement rates exceeded 70 percent for all sectors.

The match reinstatement rate among publishing companies was 62 percent, and was 53 percent in the financial sector. Companies in the entertainment industry trailed the pack, with just 50 percent restoring their matches.

Of the 260 companies surveyed, 29 reduced their match instead of suspending it outright. About a third of them have since reinstated their original match.

Towers Watson said the slow economic recovery prompted some employers to take their time to reinstate the match. Its analysts also believe recent economic turmoil and fears of a double-dip recession could result in more companies suspending the match again.

Copyright 2011 The Associated Press.