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one in five companies eliminating 401(k) matching

by Angela_C
Published Jun. 25, 2009
Views: 1245

I just received this one on my inbox...

 

One in five companies eliminating 401(k) matching

 

Charlotte, N.C., June 22, 2009 – Grant Thornton LLP’s recent survey of U.S. companies finds that 29 percent have already modified, or currently intend to modify, the matching contribution feature in their 401(k) plans during the 2009 plan year; two-thirds of those respondents (approximately 20% of all respondents) report that they will eliminate the match entirely.  

“Clearly, the economic downturn is causing many companies to reevaluate their 401(k) plan design carefully, and in many cases, rethink their 401(k) plan strategy,” said Sharon Whittle, Grant Thornton’s Compensation and Benefits Leader for the Carolinas. “The highest anticipated action reported by all respondents is the complete elimination of the match, which will generate the most cash savings for the plan sponsor.”   Other survey findings include:

  • Employer matching Almost 87 percent of companies reported that their 401(k) plans provided for matching company contributions prior to 2009.
  • 401(k) plan nondiscrimination tests Approximately 34 percent of companies felt that the reduction or complete elimination of the matching contribution feature would make it less likely that the 401(k) plan nondiscrimination tests (the ADP/ACP tests) for 2009 would be passed; and 38 percent reported that they did not expect any significant changes in the test results between the 2008 and the 2009 plan years. Almost 10 percent of companies indicated that they felt the test results would actually improve during the 2009 plan year (which correlates to the 11 percent of companies that reported that they expected to increase the match during 2009).
  • Safe harbor 401(k) plansApproximately one-third of companies with a matching contribution in their 401(k) plans indicated that they currently have a “safe harbor” 401(k) plan (a plan that is exempt from the 401(k) plan nondiscrimination tests because it provides a minimum level of employer match), and approximately 27 percent of the plan sponsors with a safe harbor plan indicated that they are considering the reduction or complete elimination of the match during the 2009 plan year.
  • Automatic enrollment 401(k) plans Approximately 36 percent of companies with a matching contribution in their 401(k) plans reported that they currently have an “automatic enrollment” plan (a plan that automatically enrolls employees when they are initially eligible to participate and contains a procedure for them to “opt out” of the auto enrollment feature), and approximately 31 percent of plan sponsors with an automatic enrollment plan indicated that they are considering the reduction or complete elimination of the match during the 2009 plan year.

  “The survey results also illustrated certain trends by industry and by the revenue levels and work force size of the companies,” added Whittle. “We found that companies in the health care and not-for-profit industries were less likely to make changes during 2009, while companies in the technology, retail/trade and financial services/banking industries were generally more likely to make changes during 2009. Larger employers, whether classified by revenue levels or the size of their work forces, were generally more likely to make changes during 2009.”   “Companies are expecting 2009 to continue to be a challenging year for business growth and financial stability,” concluded Whittle. “The impact on 401(k) plans appears to be greater consideration of lower, and more prudent, spending on matching contributions in order to address cash and profit constraints.

The reduction or complete elimination of matching contributions may have an ancillary impact on benefits for key employees due to the potential negative impact on nondiscrimination testing; therefore, any decision affecting matching contributions should consider both the overall employee perception of the employer and its 401(k) plan and the potential consequences on retaining and motivating key high-performing employees.”  

 




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The economic downturn is a perfect oppurtunity for companies to reset their compensation levels and increase profits. Just wait until CAP and Trade passes and companies pass that added expense onto their customers (you and me), in addition to the increase costs to heat and cool our homes.

My workplace stopped their 401K matching too. That's the injury. The insult is the market loss we've all seen.

Another benefit that state employees have never had. (I post this only because of previous posts, in other blogs, that seem to indicate belief that state employees enjoy benefits far beyond the private sector.)

Hubby's company modified their health insurance almost 2 years ago to an HSA plan to save a bit of $$. They did take the $$ saved, and put set amounts into each of the employees accounts, and the plan was to do this every year. We got it in December 08, but I don't think we'll get it in '09. They cut the 401k matching in February, and then in May did a 5% paycut across the board and laid off 6 people (2 in each office).

We were just going to take the $$ he had been putting in the 401k into a Roth, but we've lowered the percentage now because of the paycut. I'm only temping for now, but I've been here since Jan. We're just waiting on the company to lift the hiring freeze long enough to bring me on board permanently.

We'd LIKE to think that they'll re-instate the 401k matching - but we'll see. We're pretty confident in that they won't stop the insurance, as two of the partner's wives have cancer and are on the plan. They'd be hard pressed to get an individual plan.

"What is the big deal? 401K match is a perk of a job."

Well, think of it as a cut in pay. For example; my company would match up to 6%. That's 6% of your income that you are no longer saving for retirement. And to top that off, some companies, like mine, are also doing a 5% pay cut. When you hear state workers whine about a .5% pay cut, it sort of makes one shrug and think "So?".

"If you are over 60, your individual or small group premium will probably cost you over $1,000 per month. That's a budget buster for most Americans."

and that's a sad thing. in fact, i would be surprised to hear of anybody in that age group that was able to get it for less than $1K per month.

"don't be surprised to see employers ( in particular small businesses) drop their healthcare coverage."

Companies give "benefits" to their employees when they need to compete for labor. When they don't need to compete (like now), they stop giving them. Health insurance is the most likely benefit to be dropped next, and one of the reasons the government is in a hurry to pass some sort of healthcare reform bill is to keep companies from beating them to the punch. If all companies were to drop their plans, there would be few viable alternatives to nationalizing the system.

Many people don't realize that individual plans and small group plans are far more costly than large group plans, because premiums are based on the age of the insured. If you are over 60, your individual or small group premium will probably cost you over $1,000 per month. That's a budget buster for most Americans. In a large group, premiums for all are equal regardless of age. It makes a huge difference.

"Slick, so do you think it's not coming back at all at your place? "

angela, given my position in the company, i can say for fact that is the intention...but, probably not until sometime in 2011. don't expect things to improve enough in 2010 to enable this to happen.

as far as things improving in 2010, i wouldn't expect a rapid recovery...that would not be good in the long term anyway. i believe we have pretty much hit the bottom, there will still be come ups and downs to come, but a long, slow recovery is in sight.

" I will just pull my money out of it-- right?? WRONG!!! "

you would be much better off to leave your money in there anyway. if you are investing wisely, you should be earning a decent return, or at least preventing losses. you do have the option of cutting your contributions entirely.

What is the big deal? 401K match is a perk of a job. No one holds a gun to anyone's head to work a job, do they? The company owns your job, not the other way around. The owners/shareholders can do whatever they please with their money. We don't own our jobs. Those who complain about their jobs are one of the reasons jobs get outsourced/eliminated. The whole point of employment is mutual value. It works both ways. If you don't like the benefits of where you work, go look for another job. If the company doesn't see the value in matching 401K, then you can find a company who does.

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