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Companies Start Matching 401(k) Funds Again

After two years of focusing on the bottom line, companies that stopped matching employees' 401(k) contributions plan to restore the benefit this year.
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BOSTON (TheStreet) -- After two years of focusing on the bottom line, companies that stopped matching employees' 401(k) contributions plan to restore the benefit this year.

Earlier this month, human resources consultant

Hewitt Associates


, released the results of a survey of 162 mid- to large-sized U.S. companies, representing a pool of 5.7 million employees. Among companies that suspended or reduced matching


contributions last year, 80% plan to restore them this year.

Many companies are taking steps to ensure that retirement plans are strengthened, seeing the benefit as crucial to a productive workforce and employee retention. Only 54% of employers who took part in the survey said they were confident about their workers' ability to retire with sufficient assets, down from the 66% in 2009, according to the Hewitt survey.

According to the Pension Rights Center, a consumer organization that tracks retirement issues, at least 310 companies have suspended 401(k) matches, at least temporarily, since 2009. Among them are

American Express

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JPMorgan Chase

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J. Crew Group




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Sprint Nextel

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"It was obviously a tough year," says Pamela Hess, Hewitt's director of retirement research. "Companies certainly had a lot of competing priorities, but still 401(k) plans are a big focus. A lot of companies have already announced their reinstatements and a lot of others will follow suit later in the year."

Hess says companies never intended for suspended matches to be permanent and that most saw them as a "short-term measure that was better than further layoffs or pay cuts."

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.