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GM’s Suspension of 401(k) Match May Be Attempt to Appease UAW

December 19, 2005
General Motors’ recent move to suspend the 401(k) match for its 36,000 salaried workers may be an attempt by the Detroit automaker to ease negotiations with the United Auto Workers.

On December 15, the company announced that effective January 1, it is freezing its 401(k) match and reducing sever ance benefits to salaried workers in an attempt to cut costs. GM has announced that it plans to reduce its workforce by 7 percent in 2006.

"This is in direct response to business conditions, and that is why we are emphasizing that this is temporary," GM spokesman Robert Herta says. "We will continue to monitor the business and look to when we can reinstate the match."

Herta declines to comment on how much GM expects to save from the move. The company also is not providing details of the severance benefit cuts.

GM’s match had been 20 cents for every dollar contributed by the employee, up to 6 percent of a worker’s base salary. The automaker had decreased the match in April from 50 cents for every dollar contributed by the employees.

The firm’s move comes as GM wrangles with the UAW over job cuts, retiree health care and pension benefits.

"This certainly could play well into their negotiating hand with the UAW, to the extent that they can show that they are imposing additional burdens on salaried workers," says Marick Masters, a business professor at the University of Pittsburgh. "Now they can say, ‘Look, this burden is being shared by all of the company, not just the hourly workers."

Ford Motor Co., which is also in tough negotiations with the UAW over job cuts and benefits, made a similar move in July when it suspended its 401(k) match for its 40,000 U.S. salaried workers.

But observers are skeptical about whether cutting these benefits will make negotiations with the union any easier.

"It does show that they are finally really hurting, says Ruth Milkman, a professor of sociology and director of the Institute of Industrial Relations at UCLA. "But it seems too little, too late, and I think the autoworkers will see that."

Paul Krell, a UAW spokesman, says the union recognizes the gesture that GM is making by suspending the match, "but at the same time we have a responsibility to our members at GM, and we will do everything we can to fully represent their interests."

The effects that this action will have on employee morale may undermine any potential cost savings the company sees from the move, says Jim Gillette, director of supplier analysis at CSM Worldwide, a Detroit-based automotive forecasting firm.

"These white-collar workers are powerless—they don’t have the UAW, so they just have to take it," he says. "But they aren’t happy now, and this is just adding to the misery over there."

GM is "working very closely with our leaders to help our people understand what we need to do to focus the business," Herta says. "This is something we need to do to make us competitive."

Jessica Marquez