Some companies that have suspended contributions to employees’ 401k savings accounts may not restore them completely as the economy recovers, as they have done in the past.
Consultants say clients are considering tying their 401k matches to profitability or using some of the money for other benefits.
The current average match is 50 cents on the dollar for up to 6% of pay. For example, if a worker earning $50,000 a year contributed 6%, or $3,000, the company would put in $1,500.
But potential changes coming from Washington have some companies in limbo. Many might not restore 401k matches until they find out how much health care will cost them, said Mark Ritter, an executive director at business consultant Grant Thornton.
"Right now there’s a lot of fear about what the rules will be and what's the cost," he said. "The thought is, 'We may have to rob Peter to pay Paul and, depending on how the health care initiative impacts our company, we might have to get the money from the 401k match.'"Companies thinking about tying the match to profitability may simply commit to contributing more to the match in good years and less in bad years, the most flexible option. Another is to promise a level of matching if the company hits profit targets.
Sprint Nextel, for example, suspended 401k matches in March. Spokesman James Fisher said contributions will be on a profit-sharing basis. The company had matched employees' contributions dollar-for-dollar for up to 4% of pay.
Other employers may put some of the money into a health savings account, workplace improvements or education and development programs.
The Pension Rights Center, a consumer advocacy group, said it is tracking more than 280 companies with suspended or reduced retirement plan matches. A string of companies began announcing suspensions or reductions in June 2008, and the trend continues.
The list of companies includes widely recognized names such as Sears Holdings, Starbucks and General Motors. It also includes nonprofit groups like Public Broadcasting Service, the Portland Art Museum and the American Red Cross chapter in New York.The Pension Rights Center is concerned that retirement benefits may become a casualty of the recession as companies look to permanently reduce costs.
"Unfortunately, we've seen this trend over the past 20 years where companies are increasingly getting out of contributing to their employees' long-term well-being plan, whether it's a pension or retirement income or health benefits," said Nancy Hwa, the center’s spokeswoman. "So, it might be sort of a consequence of that trend."
One lasting effect of this deep recession may be a new mind-set among many business executives, Grant Thornton's Ritter said.
"People realize that the floor can fall out from under them now, and they want to stay loose," he said. "The discretionary nature of commitments has become a lot more attractive."
Many companies typically consider the 401k match a virtual guarantee for workers. It also ranks high on the list of benefits that prospective workers seek when interviewing.