Companies Start Matching 401(k) Funds Again

Last spring, Hewitt tackled the topic of suspended 401(k) matches with an analysis showing that companies could save, on average, more than $1,500 per employee each year by suspending matches. Large companies that match 50 cents of each dollar an employee deposits, up to 6% of pay, would save $25 million a year by cutting matches. The average mid-sized company could save more than $10 million annually and the average small company could save nearly $2 million.

The firm, however, has advised against such a strategy because of the negative impact on employee participation and contribution rates. It has warned that once a match is suspended, employees could reduce their own 401(k) contributions or even stop adding to their plan entirely, causing savings to shrink by thousands of dollars due to even a one-year suspension.

Hewitt estimated that a young worker earning $50,000 a year who contributes 6% of his salary would have $16,000 less for retirement if his employer suspends its match for one year. That number jumps to $48,000 if the employee stops contributing during that year as well.

Hess says the new survey shows that companies plan to be more active in managing plans going forward. Key findings include:

40% of respondents are "very likely" to measure the competitiveness of their retirement program.

27% plan to review their plan design.

59% of employers offer automatic enrollment, up from 51% in 2009. Among those that don't offer the feature, 27% are very or somewhat likely to add it in the coming year.

29% offer Roth 401(k) accounts, with 12% planning to add the benefit.

46% are "very likely" to review defined contribution fund operations, including expenses and revenue sharing.

45% are planning to review fund offerings.

14% of employers currently offer annuities outside their plan as a rollover option, up from 8% in 2009. More than one-quarter (28%) are very or somewhat likely to add them in 2010.

-- Reported by Joe Mont in Boston.

>To order reprints of this article, click here: Reprints