Like many companies, Briggs & Stratton Corp. made tough economic decisions last July. To avoid layoffs, the Wauwatosa, Wisconsin-based manufacturing company froze matching contributions to its 401(k) plan and reduced salaried pay by 10 percent.
At the time, the strategy was expected to save $9 million.
The company wanted to keep as many employees as possible, so when the economy turned around, it would be ready with an experienced, highly skilled workforce, says Todd Teske, president and CEO.
“No one likes getting a pay cut, but at least we were upfront with what we were trying to accomplish,” he says.
Six months later, Briggs reinstated the matching contribution and reimbursed 75 percent of salaried employees’ wages. After restoring the match and salary, the six-month hiatus saved the company $4.6 million, Teske says.
“We try to pay a competitive benefits package. If we take that away, we run the risk of losing these people,” Teske says, adding that restoring the match and salary “reinforces to our employees that they are very important to what we do.”
Now that the economy is showing signs of improvement, many companies are following the same trend and reinvesting in human capital by reinstating employer matches to 401(k) plans, a recent Fidelity Investments survey showed.
Of the 293 U.S. employers suspending matching contributions last year, Fidelity found 44 percent restored or intend to restore the match by next year.
“This is one of the first things employers look to do as a recovery takes hold,” says Beth McHugh, vice president of workplace investing at Fidelity.
Percentage of companies that plan to reinstate their 401(k) match in the next 12 months
|5,000+ employees: 24%|
|1,000-4,999 employees: 24|
|500-999 employees: 21|
|<500 employees: 23|
Percentage of companies that have already reinstated their match
|5,000+ employees: 47%|
|1,000-4,999 employees: 30|
|500-999 employees: 17|
|<500 employees: 13|
Percentage of companies where match remained suspended or reduced and they gave no indication of reinstating
|5,000+ employees: 29%|
|1,000-4,999 employees: 46|
|500-999 employees: 62|
|<500 employees: 64|
|Source: Fidelity Investments|
Large employers (those with 5,000 or more workers) are leading the trend, with 71 percent reporting they have restored the match or intend to restore it within the year, the Fidelity survey showed. Manufacturing companies, such as Briggs, are leading industries as well, with 52 percent of manufacturing firms reporting they have restored the match or intend to do so. The other top 401(k) restorers were professional services companies (44 percent) and information services companies (36 percent).
Employers who suspended the match during the economic downturn need to revisit the issue, says David Wray, president of the Profit Sharing/401k Council of America. People who have jobs today are the top performers, who survived the multitude of layoffs over the past 18 months; they are most likely the ones employers need to keep. Helping contribute to a retirement plan is one way of doing that.
“Companies recognize they need to invest in their employees,” Wray says. “Companies certainly don’t want their good people leaving.”
Briggs’ $297 million 401(k) plan currently has 10,052 participants with an average 6.5 percent of salary deferral rate. The company uses automatic enrollment and automatic escalation. It went back to its original match, which was 100 percent of the first 1 percent of salary deferral and 50 percent on the next 5 percent of pay.
“We need to make sure we are competitive so we can attract and retain the employees who are so important to our business,” Teske says.
And while losing the company match certainly got employees’ attention, employers can use the reinstatement as an opportunity to improve saving habits, Fidelity’s McHugh says. Many studies have shown that when an employer contributes—at whatever rate it chooses—employee participation increases in retirement plans.
“This is the way plan sponsors have historically incentivized employees to participate in the plan,” McHugh says.
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