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Reader Responses October 4, 2003
SURVEY SAYS: What's the Status of Your Company Match?
April 10, 2003 (PLANSPONSOR.com) - Cutting the
company match is back (still?) in the headlines again, but
with jobs at stake and cost pressures looming, it seems like
everything has to be "on the table." This week we asked
readers to tell us what was going on with YOUR company
match.
Reported by Nevin E. Adams
For nearly two-thirds of this week’s respondents, there was no change – or serious talk about a change – to the match. As one reader said, “We are leaving the match alone. We haven’t even considered making a change. How can we possibly communicate to folks that the 401(k) is the ‘best savings deal in town’ and then reduce the match…. Especially after the market year(s) we have experienced we need to support our folks and their retirement plan efforts.”
Or, as another said, “Left it intact — and always will. We regard the contribution as a part of compensation. If we can’t afford the contribution, we can’t afford the employee and he/she goes bye-bye.” Some were focused on other problems, such as the reader who said, “a) left it intact…this week’s crisis is the post retirement health benefits plan.”
Still, nearly 12% were at least talking about it – and some of those talks appeared to be both imminent and serious, as with the reader who said, “We have not yet cut our company 401k match. However, it is currently up for discussion and is a real possibility. Please share other feedback you receive on this.”
“Tapped” In?
Or there was the reader who said, “Have our offices been bugged? How many times have I heard in the last month “We need to reduce costs and everything is ‘on the table’.”? It appears that the matching contribution is actually the centerpiece of the table because it can be reduced quickly, easily and reap huge cost savings. However, instead of making the decision months ago when our cash crisis began, our management has engaged an outside consultant, conducted an all-employee survey and employee focus groups. The result is that employees do not want to cut the match (duh!) but even after all of the expense to discover this – it looks like the match will be cut very soon. All that to say, I have to go with b) for now and d) next week.”
Only about 10% had actually cut the match – but those who had painted a bleak picture indeed. Consider the reader who shared, “We stopped matching for 2002 and 2003. At the end of 2002 our 401(k) plan participation rate had fallen from 59% to 47%.” Another said, “Effective Dec 2002, we cut our match in 1/2 (from 100% of the first 3% to 50% of the first 3%), but added immediate vesting to the plan. It went over like a lead balloon.” In fairness, a number that had cut the match nonetheless pointed out that the move was preferable to cutting jobs.
Finally, about 13% responded “F” (something else), generally either because they never had a match, because they had only a pension plan or, as in the case of this reader – well, read for yourself: “We’ve “C”‘d (cut the profit-sharing) so much that we’re thinking about completely doing away with profit sharing. It just makes folks mad when they see a miniscule profit sharing contribution when, in days gone by, it was as high as 20%. But times were better then and the company didn’t match on 401(k) contributions. That’s something folks forget about ~ that as long as they contribute, they are guaranteed that the company will kick in some $’s vs. profit sharing, which in our case, is totally up to management’s discretion. But for now we’re in “B” mode so I guess my answer is “F”.”
Spinning Wheels?
Another reader shared the kind of frustration expressed by several: “Our participation has languished at 61% for three years. As fast as we sign new people up, current employees drop out. We are just spinning our wheels waiting for the economy to turn. I would also like to review our investment offerings and develop an investment policy and strategy, but at the moment, with most funds in the negative, it just seems like a waste of time…I recently processed MRD’s for three former employees. The average account balance was $15,000. I think that says it all.”
Another (who left the match intact) said, “We have a great match and still have low participation! We tell people it’s free money, but I just can’t figure out which part of “free money” they don’t understand.”
But this week’s Editor’s Choice comes from a reader who has suspended the 2003 match, and yet notes, “The truly mind boggling affect that always amazes me is when employees stop their contributions stating that if the company is not going to contribute to their retirement why should they.”
Thanks to everyone who participated in our survey.
a) For now. Review after 6/30 financials are in.
Our company does not match our 401(k) plan. The reason for no match was that we had a defined benefit plan. However, the company has frozen the DB plan for all non-union participants, and there still is no match on the 401(k). All the talk about matches being cut by other companies only enforces the thoughts of our leaders that not making any match is the right choice.
We don't have a match choosing instead to put all of our available resources for retirement purposes into the defined benefit pension plan. Attempting to insure the survival of the DB plan has been challenging enough!
Company match on the 401k? Hah - never had it - but still have our defined contribution pension plan with NO plans of cutting it (shhh!!!) - so now we're beginning to look a lot better than everyone else
We are leaving the match alone. We haven't even considered making a change. How can we possibly communicate to folks that the 401(k) is the 'best savings deal in town' and then reduce the match.... Especially after the market year(s) we have experienced we need to support our folks and their retirement plan efforts.
We have a 401k plan where we match 50% on the first 6% contributed and have no profit sharing component. We also have a DB plan. We have no plans to make any changes even though the cost of funding our DB plans has increased.
We have never matched on 401(k) contributions. We had strong participation (70%ish) until the last view years. The participation numbers are blurry now, as we have waived the waiting period.
We do have a Profit Sharing contribution that really is based on Profits and allocated on Years of Service and wages.
We have not yet cut our company 401k match. However, it is currently up for discussion and is a real possibility. Please share other feedback you receive on this.
We have not cut the company match and have not discussed plans to do so. My guess would be that the negative impact on the staff as a result of cutting the company match would be far greater than the cost savings to the organization.
Our company has not announced any decrease in the match, but since it is only a 10% match on the first 6% of compensation it isn't that great of a match in the first place. There is an additional 15% match based on the performance of the company ... I can almost guarantee that we will not receive the additional "profit sharing" match this year! Oh well, less money going in is less money for the stock market to eat up with negative returns.
We have the best of both worlds. We work for the best company and they contribute 4% of an employee's annual salary regardless if they contribute or not. However, we are very proud of the fact that 96% of our employees make deferral contributions towards their retirement. Thanks for NewsDash, which I find very interesting. Thanks again, Martha
We do not have a match -- never have had. However, we have a profit-sharing contribution that has remained steady for about 25 years. There are no plans to change the profit-sharing, or even discussions along those lines.
We have temporarily suspended both the match and profit sharing contributions (last August). We are hoping to get these back in the next quarter. Yes, our regular contribution rate has reduced dramatically, about 2 points on average.
We have left the match alone for now, but we are discussing what retirement benefit cuts we could make to achieve our company's financial goals.
Our match is dollar for dollar on the first 5% of base pay. It has remained unchanged for ten years. There are no plans to alter it in the near future.
Have our offices been bugged? How many times have I heard in the last month "We need to reduce costs and everything is 'on the table'."? It appears that the matching contribution is actually the centerpiece of the table because it can be reduced quickly, easily and reap huge cost savings. However, instead of making the decision months ago when our cash crisis began, our management has engaged an outside consultant, conducted an all-employee survey and employee focus groups. The result is that employees do not want to cut the match (duh!) but even after all of the expense to discover this - it looks like the match will be cut very soon. All that to say, I have to go with b) for now and d) next week.
At last I can say we are progressive and way ahead of the trend. Our 401(k) has no match or profit sharing element and we're not changing so we're an (a) but perhaps a false (a) for your purposes.
Actually we have a separate plan where the company contributes 5.5% of annual wages into a defined contribution plan for each qualified employee. There is no talk of lowering this either. They do this so one doesn't have to defer to get some company money in the way of a match. Nice for the lower end earners, although it does offer some challenges in participation. We were 4/100's of failing the ADP tests for 2002. With the limits going up (as they should) the HC pool is still maxing out while most of the NHC pool contributes the same percentage. If we do fail the test for 2003 it will be interesting to see what remedy will be considered.
Have no match but have a fixed pension contribution. Contribution has remained the same with no discussion of change.
We have d) reduced the match from negligible to nothing. We're family owned so there's no stock or stock options nor is there any other variety of profit sharing or pension plan. Our 401(k) participation is moderate. As I walk through the halls, I know that many of our employees are the Wal-Mart greeters of tomorrow.
Thank god this has been one of the benefits that has not changed - and there has been no talk of changing it either - we increased the weekly contribution allowed so anyone can reach the Federal limit and allowed "catch-up contributions. Surprisingly we have a number of people doing so. At our annual meetings our President encourages everyone to enroll - he also lets us know how much it costs the company to do so along with every penny spent and earned - it's a nice perk of being a family owned company who puts their employees first.
We have (a) left our match intact. Our match is in the form of Treasury Stock. We fund the employee contributions and the match each pay period. There has been no discussion to discontinue or limit the match. Participants do have the options of selling the Company Stock and transferring the proceeds to the other investments at any time.
We stopped matching for 2002 and 2003. At the end of 2002 our 401(k) plan participation rate had fallen from 59% to 47%.
Effective Dec 2002, we cut our match in 1/2 (from 100% of the first 3% to 50% of the first 3%), but added immediate vesting to the plan. It went over like a lead balloon.
We've "C"'d so much that we're thinking about completely doing away with profit sharing. It just makes folks mad when they see a miniscule profit sharing contribution when, in days gone by, it was as high as 20%. But times were better then and the company didn't match on 401(k) contributions. That something folks forget about ~ that as long as they contribute, they are guaranteed that the company will kick in some $'s vs. profit sharing, which in our case, is totally up to management's discretion. But for now we're in "B" mode so I guess my answer is "F".
b) But the budget discussions for next year have not perked-up yet, but they will.
a. Left it intact, at a healthy 10% of wages - company contribution, no deferrals necessary to get the contribution. It's one of our best benefits!
In response to the survey: we have a discretionary annual company contribution to our 401k plan. The company has not made a contribution in two years but is planning on doing so this year. Oddly enough this is going against what seems to be the current trend. Shame on Schwab!
Our participation has languished at 61% for three years. As fast as we sign new people up, current employees drop out. We are just spinning our wheels waiting for the economy to turn. I would also like to review our investment offerings and develop an investment policy and strategy, but at the moment, with most funds in the negative, it just seems like a waste of time. Who is going to sign up to invest in a fund that has done well over a five year period but tanking in the last two? 401k investors are very short sighted.
I am a huge supporter of 401k but now even I am having doubts over the ability of a 401k to provide a secure retirement for the masses, mainly due to low contributions, poor investment strategy (lack of education), taking loans repeatedly and frequent "day trading."
I recently processed MRD's for three former employees. The average account balance was $15,000. I think that says it all.
Left it intact -- and always will. We regard the contribution as a part of compensation. If we can't afford the contribution, we can't afford the employee and he/she goes bye-bye. This has never happened and we sure hope it never does. But, we find regarding the contribution as compensation rather than as an "optional benefit" solves a ton of problems.
(a) Left it intact. We are discussing sharing plan expenses with the employees, but don't plan on changing our matching contribution.
My company just began to investigate the possibility of temporarily discontinuing the company match. As a small company I informed my boss that most of the money that we do not match would be to him and the other executives (probably 1/2).
But if stopping the match saves a few jobs I guess it is worth it.
Our answer is a, left it intact. We have a great match and still have low participation! We tell people its free money, but I just can't figure out which part of "free money" they don't understand. Just sign up even for 1%!!!!! Our fixed match has been increased over the last several years and the current one has been in place since 2001. Its 100% on the first 2% and 40% on the next 4% contributed. So that's comes out to 60% on the first 6%. The match used to be invested only in company stock. Early last year, we changed so its invested the same as participants' own contributions. We would like to increase the match to be safe harbor to avoid discrimination testing, but that additional cost is not likely to fly. Those increasing health care costs keep wanting more and more of our budget.
The small benefits planning firm I work for (fewer than 20 people), has a discretionary profit-sharing match incorporated into the 401(k) plan. For PY 2002, we did receive our match, and as long as we remain profitable, the match will continue to be forthcoming.
We do have several of our clients, however, who have determined that in order to maintain decent (read: rich) health benefits, they have had to make that particular cut. It is a very difficult decision...but it's better than having to lay-off good people who have been with the company for a long time!!
My company recently cut back their Thrift Plan contribution match to 4.0% from 5.0%. No one seems to have a problem with that considering the environment and that the company has had no layoffs to date.
Our company stopped matching with each paycheck, instead doing so quarterly.
a) Left it intact...this week's crisis is the post retirement health benefits plan.