It’s not just jobs that have been slow to come back during the economy’s spastic recovery from the Great Recession. About half of the U.S. companies that suspended contributions to their employees’ retirement savings after 2008 haven’t restored them yet.
In a 401(k) plan, the worker voluntarily saves part of his or her pay in a tax-deferred account. The employer typically matches a portion of the worker’s contributions.
About one in five employers with 401(k) plans cut or ditched their matching contributions during the 2007-2009 financial meltdown, according to a recently released report from compensation consulting firm Towers Watson. The cuts were particularly prevalent at firms in the retail, manufacturing, media, communications and technology industries.
But, in a sign of potentially better times, most of the laggards say they expect to again start chipping in money within the next 12 months, according to Towers Watson.
The firm found that 46 percent of companies that earlier cut their 401(k) matching contributions have since restored at least part of them, and most of the rest planned to within a year. The results are based on a survey last year of more than 300 companies with 401(k) retirement plans and at least 1,000 employees.
Atlanta-based disinfectant manufacturer Zep, for instance, began phasing in its contributions about six months after suspending them in 2009.
Starting Jan. 1, Sandy Springs-based UPS again started matching its employees’ contributions to their 401(k) retirement savings plans. Nearly two years ago, the package shipper suspended contributions for about 35,000 of its non-union employees, but maintained their traditional pensions, as part of a $500 million cost-cutting campaign.
The new match is up to 2.5 percent of salary and is expected to cost UPS about $75 million in 2011. In the past, the company matched up to 3 percent of an employee’s salary.
Other employers have decided they still can’t afford to boost such contributions, or have decided to shift money to other employee benefits.
Forsyth County, which cut contributions to its employees’ 401(k) plans last year as part of broader budget cuts, recently decided to leave contributions at the lower level this year.
Likewise, the Atlanta Convention and Visitors Bureau has no immediate plans to restore 401(k) contributions that it suspended in 2009. The bureau instead expects to partially restore funding for another retirement plan that covers nearly all of its 75 employees, said Gregory Pierce, executive vice president.
The bureau hopes to eventually restore full contributions to both retirement plans, said Pierce, but “we’re going to wait and see how the year goes.”
Such decisions carry more weight these days because so-called “defined contribution” plans such as 401(k) plans have replaced traditional pensions as the dominant retirement benefit for most employees. More than 40 percent of private-sector workers have 401(k) plans, compared to about 15 percent who have traditional pensions, according to the Employee Benefit Research Institute.
Also, employees are more likely to let their own contributions lapse when the company stops putting in cash.
401(k) vs. pension
Most private employers have switched to 401(k) plans in the last three decades as a cheaper alternative to pension plans, which typically required them to pump in more cash whenever recessions sent the value of their pension plans’ investments into a slump.
With 401(k) plans, employees bear such investment risks, rather than their employers.
Nevertheless, some employers still retreated from 401(k) plans.
Metro Atlanta employers that cut 401(k) contributions included NCR Corp., Zep Inc. and Peachtree City-based Georgia Bancshares, according to the Pension Rights Center in Washington, D.C.
The cuts often came on top of other hits to employees’ security, such as pay cuts, layoffs and the freezing of their traditional pension plans.
At the Atlanta Convention and Visitors Bureau, Pierce said the suspension of the bureau’s contributions didn’t have as large an impact as he feared on employees’ participation in the 401(k) plan.
Roughly 10 percent cut their own contributions, but about 60 percent of the bureau’s 75 employees have remained in the plan.
Still, he said workers are beginning to get antsy after two years without any retirement funding from their employer.
“We are getting a lot of questions from employees,” he said.
401(k) MATCHES RETURNING
Most large employers maintained their contributions to their workers’ 401(k) retirement plans during the recession. Most of those that didn’t have restored funding or are thinking about it, according to Towers Watson’s survey last year of companies with at least 1,000 employees. Among their findings:
*13% of companies suspended their 401(k) match since late 2008
*5% reduced their 401(k) match
* 33% of retail or wholesale firms cut or suspended contributions; 26% of manufacturers did.
* 46% of all firms that cut or suspended 401(k) funding have since reinstated at least some contributions.
* 37% of all firms that made cuts have fully restored contributions.
* 49% of all firms that made cuts are considering restoring something within 12 months.
Source: Towers Watson.
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