RESTORING 401(K) MATCH WOULD BE A SMART BUSINESS MOVE

April 21, 2009

Employers should reinstate the 401(k) matching contributions they've suspended or reduced to save money, says Pamela Yip, a business columnist, with the Dallas Morning News. 

So, how much are employers actually saved by suspending the 401(k) match?  According to a Hewitt Associates analysis:

  • Companies can save an average of more than $1,500 per employee a year by suspending their 401(k) match.
  • That assumes an average employer match of 50 cents to the dollar, up to 6 percent of pay.
  • The average midsized company (between 2,001-15,000 employees) can save more than $10 million, and the average small company (between 1-2,000 employees) can save nearly $2 million annually.

While the savings to the company may be worth it for now, making the match suspension permanent can have costly long-term consequences, says Yip.  The most obvious is that employees may stop contributing to their 401(k) altogether.   And once they get out, it's hard to get them back in.

So far, employees are sticking with their 401(k), thanks in large part to automatic enrollment programs at their companies, but it's the ones that bail out who are worrisome, says Yip:

  • Many workers who stop contributing to their 401(k) when their company suspends their match don't immediately resume contributing once their employer reinstates it.
  • A younger worker earning $50,000 a year who stops contributing 6 percent of his salary for 5 years can have up to $150,000 less for retirement at age 65.

Moreover, suspending the match has a significant impact on employees.  Not only does it dissuade many workers from saving in their 401(k), but it also adversely affects their ability to save enough to retire, says Yip.

Source: Pamela Yip, "Restoring 401(k) match would be smart business move," Dallas Morning News, April 20, 2009.

 

Browse more articles on Economic Issues