More Employers Reinstating 401(k) Match


Retirement investors, as well as banks and investment firms, are welcoming news that U.S. employers are once again more likely to offer 401(k) match contributions than not. It’s mostly larger companies leading the way, but momentum is on the rise for the popular 401(k) match.

The data comes from a March survey of 293 U.S. companies by Fidelity Investments. Fidelity says that in July 2009, 8% of surveyed companies had suspended their 401(k) matching programs. But less than a year later, 44% of all companies surveyed said they either have reinstated the company matching plan, or would do so over the next year. More so, 70% of large U.S. companies have decided to reinstate their 401(k) matching plans.

The bad news? According to Fidelity, the 401(k) matching rate was most sparse at companies with 500 or less employees, where only 36% said they would reinstate employee matching in 2010.

Overall, Fidelity says that as of Dec. 31, 2009, four out of five (80%) plan sponsors offered employer contributions to retirement savings plans as a workplace benefit. “Of the plan sponsors for which Fidelity tracks matching data, the most common match rate is 100 percent on each employee dollar contribution, up to 3 percent, at 35 percent of plans. The second most common match, with 14 percent of plans reporting this rate, is 50 percent of each employee dollar, up to 6 percent.”

Sure, Fidelity has a big stake in the 401(k) — it’s one of the biggest providers of such programs in the U.S. (In the U.S. about $2 trillion is held in approximately 325,000 401(k)s, which are owned by more than 40 million participants, according to the Wharton School of Business at the University of Pennsylvania). But the story Fidelity is telling here is backed up by independent sources.

In a similar study by Hewitt Associates of 162 mid-size and large U.S. companies, 80% of companies that suspended or reduced their 401(k) match in 2009 are planning to restore it in 2010. To further help American workers meet their retirement savings goals, 38% of companies surveyed by Hewitt said they are likely to instate automatic contribution escalation — a mechanism where workers can have their contribution rates ratched up automatically over time.

"In the last 18 months, employees' 401(k) accounts took a serious financial hit due to the severe market downturn. Some of them also lost the additional retirement savings that their 401(k) employer match provided," says Pamela Hess, Hewitt's director of retirement research. "While there has been marked growth in 401(k) balances since the market recovery began, we still see too many workers not saving and investing in a way that will help them achieve their retirement goals. Employers are trying to do their part to help — which is why they are restoring their matching contributions and offering features and tools that push workers to save more throughout their working years."

Times have been tough, but the Fidelity and Hewitt reports suggest that companies are beginning to emerge from their cocoons and start investing in their human capital again.

That’s just in time for the great American worker, who is going to need all the help he or she can get in playing catch-up on their retirement savings.

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