Easing the shock of cutting 401(k) contributions
July 1, 2009 by Jim GiulianoPosted in: Pay and benefits, Special Report - Benefits
Nearly a quarter of all employers have eliminated matching contributions to retirement plans during the recession. Some have found ways to cushion the blow. Most employers saw it as a temporary step, Steve Anderson, from Charles Schwab, told Reuters.
Despite these cuts, 87% of execs said the company match was “the most important feature” of their company’s 401(k).
A quarter of companies have also put some limits on enrollment, instead of offering the plan to all employees. The study for Charles Schwab Corp. by CFO Research Services surveyed 200 senior finance and human resources executives.
“63% say employee concerns over personal finance are creating a more difficult work environment.”
You may also want to address employees’ anxiety about their retirement funds by increasing the amount of advice.
While the execs mostly agreed that the current system worked well, 63% said the recession had generated concern in the office. Here’s what execs are doing to address employees’ anxieties:
* 76% are making investment advice more available, and
* 25% are offering individual advice
See: “Getting Retirement Savings Back on Track: Employer Views on the 401(k) and Financial Educations in the Workplace” (links directly to PDF available from Charles Schwab.
Tags: 401(k), Charles Schwab, retirement
July 2nd, 2009 at 12:18 pm
As the controller and HR manager I can see where this may be necessary but companies should adopt a plan to put money back in to the employees 401K after the recession ends and profits soar once again. It does not have to be all the matching funds that the employee lost out on but a good portion of them at least.
July 2nd, 2009 at 1:27 pm
Paul,
Great idea. If employers do a temporary stop to matching, employess would understand. Most people would rather the employer quit matching the 401K than take a risk at losing a job.
July 2nd, 2009 at 1:48 pm
In our company, (small) we were told the 401K match had to be cut because times were tough. Then the boss traded in his 3 year old bmw for a brand new (more expensive) one. Great employee morale booster!
July 2nd, 2009 at 2:10 pm
Paul and Been There,
Yes great idea and that is our plan. We already do have a profit sharing contribution provision in our 401k plan. In the past we did both matching and in rich profit years also an additional profit sharing contribution to the 401k. At the beginning of this year we stopped the matching along with reducing other operating expenses. Our employee contributions dropped a bit at first, but then went back up. We are now a more well balanced company and are projecting a profit sharing contribution at the end of the year. As long as employee participation continues to be good, we may continue to forego the employer match and just do profit sharing contribution.
July 2nd, 2009 at 4:07 pm
I’ve been at a company where the match was small, (not my current employer) but they did have a profit-sharing portion as well. One year, they froze wages for at least 18 months, & did away with the match for 401K. Some of us “valuable emloyees” were given stock options in order to induce us to remain at the company without a raise. After 18 months, the company was sold, but because of the lack of growth, the stock options were worthless. A few of our top management people made a lot of money on the sale, but the rest of us got virtually nothing. Any of the companies who are looking at ways to retain good employees should do everything they can to make sure that they don’t promise something that ends up being worthless. They will lose far more people when better times return.
July 2nd, 2009 at 5:39 pm
Ramona — I understand your frustration. We have laid off close to 50% of our corporate office staff, eliminated our 401(k) match, instituted a salary and hiring freeze, eliminated travel and just generally cut down on all expenses. But we have one division that is still giving raises, traveling all over the place, giving bonuses — it sends all the wrong messages to everyone else — especially because that division is not making any money either.
July 6th, 2009 at 6:41 am
Our company sold its largest division in August last year. The company closed down the 401K, cut our pay 15%, took away our company vehicles, not paying expense accounts anymore, raised our health insurance premiums, talk about a morale killer. However, the morale booster we do have is that we have a job (for now) we also know that if we pull out we will never get back, even close, to what we have lost. we have lost about 5 years of raises, never to return. Just wanted you to know that in a county with a 15.46 unemployment rate, you have to look for any brightness you can. White, male, over 50 – willing to work.