In Need of Cash, More Companies Cut 401(k) Match

Companies eager to conserve cash are trimming their contributions to their workers’ 401(k) retirement plans, putting a new strain on America’s tattered safety net at the very moment when many workers are watching their accounts plummet along with the stock market. When the FedEx Corporation slimmed down its pension plan last year, it softened the blow by offering workers enriched 401(k) contributions to make up for the pension benefits some would lose. But last week, with Americans sending fewer parcels and FedEx’s revenue growth at a standstill, the company said it would suspend all of its contributions for at least a year. “We will have to work more years and retire with less money,” said Lee Higham, a 44-year-old senior aircraft mechanic at FedEx, who has worked there for 20 years. “That’s what we are up against now.” FedEx is not the only one. Eastman Kodak, Motorola, General Motors and Resorts International are among the companies that have cut matching contributions to their plans since September, when the credit markets froze and companies began looking urgently for cash. More companies are expected to suspend their matching contributions in 2009, according to Watson Wyatt, a benefits consulting firm. For workers, the loss of a matching contribution heightens the pain of a retirement account balance shriveling away because of the plunging stocks markets. “We are taking a beating,” said another FedEx mechanic, Rafael Garcia. “In a year, I lost $60,000 of my 401(k). You can’t make that up.” To many retirement policy specialists, the lost contributions are one more sign of America’s failure as a society to face up to the graying of the population and the profound economic forces it will unleash. Traditional pensions are disappearing, and Washington has yet to ensure that Social Security will remain solvent as baby boomers retire and more workers are needed to support each retiree. The company cutbacks may mean that some employees put less money into their retirement accounts. Even if they do not, the cuts, while temporary, will have a permanent effect by costing many workers years of future compounding on the missed contributions. No one knows how long credit will remain scarce for companies, or whether companies will start making their matching contributions again when credit loosens and business improves. “We have had a 30-year experiment with requiring workers to be more responsible for saving and investing for their retirement,” said Teresa Ghilarducci, a professor of economics at the New School. “It has been a grand experiment, and it has failed.”In the typical 401(k) plan, the employer’s matching contribution is more than just money for retirement. It also motivates employees to set aside more of their own money for old age. The more that workers save in a 401(k) plan, generally, the more “free money” they can get from their employers under the matching provisions. CONTINUE READING..