No 401(k) match? Save anyway

By Liz Pulliam Weston

Smart savers know a fat company match can really boost 401(k) savings.

The typical match -- 50 cents for each dollar a participant contributes, up to 6% of the participant's salary -- can beef up a nest egg accumulated over a working lifetime as much as 50%.

So it may be a shock to hear that eliminating company matches is a hot topic among human-resources types.

It all started last year, when four Ivy League researchers reported that doing away with a match wouldn't significantly lower participation rates in 401(k) plans in which participants are automatically enrolled. (Automatic enrollment, whereby workers have to opt out of plans rather than sign up, is in place at 44% of large companies, according to Hewitt Associates.)

This challenged long-held assumptions that a match is essential to lure workers into saving for retirement. Now some human-resources experts are wondering aloud whether the money earmarked for matches may be better spent elsewhere, such as on:

• Reducing plan fees, which participants typically pay but which are often hidden in the form of reduced returns.

• Contributing a flat percentage to every worker regardless of his or her contributions, to ensure that even employees who don't feel financially able to contribute still benefit.

• Beefing up other benefits, including health insurance.

A crumbling economy has accelerated the discussion. During and after the last recession, several major employers -- including Ford Motor, Charles Schwab and Bethlehem Steel -- suspended their 401(k) matches as a cost-saving measure.

(Schwab and Ford later reinstated their matches, although Ford's match was reduced from its 2002 level. Bethlehem Steel went out of business and sold its remaining assets to International Steel Group in 2003.)

The talk about zapping matches so far is just that -- talk.

"This is very cutting-edge thinking," said pension expert Lori Lucas of Callan Associates, an investment consulting firm. "So far we haven't seen companies reduce their matches or eliminate their matches."

But that could change, she said, particularly if the economy worsens.

It's not the match that matters

Companies "are taking a hard look at their programs," agreed Nevin Adams, the editor of Plansponsor, a magazine for pension-plan managers that recently published an article about the issue. "What's free money to (the participant) isn't free money to the company. . . . It can go away."

Employers wouldn't ax a match lightly, Lucas said. Companies know that matches are a popular benefit, and many wouldn't want the bad press.

That's especially true of employers that have frozen or eliminated traditional plans, Lucas said. They wouldn't want to be seen as abandoning their employees after shifting most of the responsibility for retirement savings to those workers' shoulders.

"There's a lot of sensitivity to that," Lucas said, "even more so than in the past," when 401(k)s were considered supplemental to traditional pensions.

But the research and the ensuing discussion have highlighted something that should have been obvious: You don't need a company match to save for retirement.

Most plans have matches, but some don't, and you can still accumulate a decent nest egg without one. You also can save for retirement on your own if your company doesn't have a retirement plan. Just open an individual retirement plan or Roth IRA at your favorite discount broker or mutual fund company and arrange to transfer up to $416 a month into the account, or $192 every two weeks if you're paid biweekly.

Continued: Do the math

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