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Curtailing Contributions
As the economic downturn forces companies to find new ways to cut costs, some organizations are cutting back or putting a stop to 401(k) retirement account matches. General Motors, Goodyear, commercial real estate firm Cushman & Wakefield, Frontier Airlines and rental car agency Dollar Thrifty Automotive Group are among those that have already suspended matches of contributions to their employees' 401(k) retirement accounts, according to a recent USA Today article. While more companies may follow suit in the months to come, making cuts to 401(k) account matches doesn't figure to become a common practice, experts say. A recent Watson Wyatt survey of 117 U.S.-based companies found that just 3 percent of the companies polled had already reduced or suspended matching plan contributions. Only 7 percent of the organizations surveyed said they expect to cut 401(k) matches in 2009. "Although the amount of media attention may make it appear as if large numbers of companies have suspended matching contributions, it is still a relatively small number that have taken any action," says Lisa Arko, retirement consultant at Washington-based Watson Wyatt. Amy Reynolds, defined-contribution retirement consultant and a principal with New York-based Hr consultant Mercer, shares the same perspective. "While the announcements about companies suspending matches continue, the numbers are relatively small compared to the thousands of 401(k) plans across the country," she says. Many of the companies changing or suspending matching contributions are in the same industries -- automobile manufacturers, publishing companies and electronics, for example -- and most are under "significant financial stress," Arko says. "Most companies that have publicly announced matching-contribution suspensions indicate they anticipate reinstating matching contributions at some point in the future," she adds. Organizations that aren't "severely challenged" financially will likely continue to view matching contributions as worthwhile investments, Reynolds says. The 401(k) plan is just one component of the larger compensation and benefits package an employer provides its employees. Changes to any single element of that package may have repercussions on the success of the program as a whole, and can affect the company's ability to attract and retain employees, Reynolds says. HR professionals are responsible for, or at least support benefit programs, and should be involved in any decisions impacting 401(k) plans. HR can also suggest alternative cost-cutting measures or ways to structure benefit reductions to reduce the impact on key segments of the workforce, says Reynolds. But when and if the tough decision to cut 401(k) matches is made, how does a company break the news to its employees? And what is HR's role in communicating such a tough-to-swallow message? "Employees should be made aware of the rationale for the decisions that have been made. In today's environment, there is ample information in the press to prepare employees for possible changes," Reynolds says. "Care must be taken to ensure any messages, whether explicit or implied, portray the employer's ongoing viability in a manner consistent with other communications to employees, shareholders or the public." While announcements of cuts to matching contributions typically come from the very top, it is critical that HR and communications experts -- either in-house or from the outside -- provide input, Arko says. Regardless of whether cuts to 401(k) contributions are forthcoming, employees should be apprised of such decisions as part of a broader discussion covering the company's overall financial well-being and the steps being taken to avoid or mitigate job losses and/or bankruptcy, she says. The sooner such discussions take place, the better. "Now is clearly the time for employers to step up overall communications with employees," says Arko, "since most are anxious about job security and company viability."
February 12, 2009 Copyright 2009© LRP Publications |
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