The (Employer) Match Is Back
Recent data show that employers have not only restored the matching 401(k), but also that employees are contributing more to their retirement plans as well.
In 2009, WRSP-TV Fox Illinois was confronting the grim financial realities faced by companies and organizations nationwide as the Great Recession took hold. With ad revenues in a free fall, the Springfield, Illinois, television station ultimately decided to pull the matching contribution from its 401(k) retirement plan.
"People were understanding," says Stacy Austin, the station's business manager. "They were happy to keep their jobs, and we didn't have many quit the 401(k) plan."
It took two years, but with an improving economy, WRSP decided to bring back its match in early 2011. The station maintained its pre-recession pact, matching 25 percent up to 6 percent of employee pay. Since the comeback, Austin says the match is generating a lot of interest.
"We don't have automatic enrollment," Austin says. "Now that the match is back, I think it makes [employees] want to get into the plan."
A number of small companies are following WRSP's move and sweetening their 401(k) plans with matching contributions, a new survey from the Plan Sponsor Council of America shows. According to the annual survey released in October, nearly 93 percent of companies with fewer than 200 participants made a match to worker contributions in 2011. That's up 10 percentage points from 2010 data.
"We all know small companies are struggling," says Bob Benish, interim president and executive director for the Chicago-based defined contribution industry group. "Those [companies] that have made it through the recession are using benefits to demonstrate their commitment to their employees."
The council's 55th annual report surveys 840 plans' data from 2011. It covers 10.3 million participants with $753 billion in plan assets. Overall, nearly 96 percent of companies had a match in their plan, compared with 91 percent in 2010.
Not only are more companies matching the contribution, but what they are offering increased in 2011. The survey showed company matches increased slightly to 4.1 percent of employee pay in 2011 from 3.7 percent.
Benish says that when companies put money on the table, employees respond by boosting contributions to their accounts. Last year, participants put just a little more into their accounts—6.4 percent of pay from 6.2 percent in 2010.
"When you have a match, it is a great incentive for employees," Benish says. "Most people will say this is a great deal."
Luke Vandermillen, principal and vice president of retirement and investor services for the Principal Financial Group, says he is starting to see a change in the way companies match employee contributions.
"In coming out of the financial crisis, employers see they need to reinstate the match," Vandermillen says. "We are at the front end of this discussion, but there is interest in how the match can be structured differently."
Industry experts say workers need to save 11 percent to 15 percent from all income sources to be ready for retirement. The employer part of the equation doesn't necessarily need to be the traditional method, Vandermillen says. Instead of companies using a typical structure, matching 50 percent on the first 4 percent of pay, 25 percent on the first 8 percent of pay could be used.
"You spend the same amount but you encourage the employee to put a little more in to get the full amount," he says.
Research from Principal's client base show that participants are able to save more when employers require a little extra from the worker to get the full match. In stretching the match formula, but keeping the employer contribution the same, total contribution amounts increase to 9 percent, from 7.3 percent.
"It's encouraging to see companies of all sizes make the investment in employees in the form of a match," Vandermillen says.
Patty Kujawa is a writer based in MIlwaukee. Comment below or email firstname.lastname@example.org.