Return of the Match

When one organization did more than just restore its 401(k) contribution-matching program after the recession, it found a great retirement-savings program can also be a great retention tool.

Thursday, March 1, 2012
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It was a day just like any other in April 2010, when Ron Gross went to work and witnessed something he says he's never seen before -- or since -- in his professional career.

"It was an amazing thing," he recalls.

Gross, a senior analyst at The Motley Fool, a financial-services firm based in Alexandria, Va., was among the company's 250 employees gathered for a monthly all-hands meeting with senior management when it was announced that the company was performing well enough to restore its 401(k) matching-contribution program back to a 4-percent match after reducing it to a 1-percent match as a budget-tightening measure the year before.

But the fun was only getting started.

Not only would the match be restored, Gross and the other employees learned, it was being restored retroactively.

That meant the employees wouldn't miss out on any money that would have been contributed during the reduced-match period.

And, as if that weren't enough to make him remember the scene vividly nearly two full years later, there was this kicker: Each employee would also receive a 30-percent "reparation" fee in order to ensure their retirement accounts would reflect the approximately equal uptick in the market that was going on at the time.

Angelique Andrae, the company's vice president of human resources at the time the match was restored -- and who now serves as the company's world ambassador, working on its philanthropic efforts -- says the decision to go beyond just restoring the 401(k) match "let employees know we were being very thoughtful about this, and we weren't just protecting profits of the company."

While The Motley Fool's case may be an extreme one, recent reports are finding many organizations that reduced or suspended 401(k) matching-contribution programs during the recession have now restored them.

This is much to the relief of employees looking toward the future and wondering if they will ever be able to afford to retire.

Indeed, according to a recent survey of 523 plan sponsors by the Chicago-based Profit Sharing/401(k) Council of America, half of the plans that suspended their matching contributions in the last four years have fully restored them.

The survey also finds that employees are increasingly making use of such programs, with almost 40 percent of the plan sponsors surveyed reporting an increase in plan participation over the past year, up from just below 4 percent in 2009.

David Wray, president of the council, says the companies restoring matches are the ones most clearly focused on retaining their best and brightest employees.

"Companies have 401(k) plans and design them to be successful for employees, because it's part of retaining high-quality workers," he says. "When you suspend [or reduce] your match, that can undermine the effectiveness of that plan."

"It's A Big Number"

While the payoff in productivity, retention and engagement for matching employees' 401(k) contributions may be harder to quantify, the actual dollar amount an organization must contribute to a matching program is not, Wray says.

"It's a big number," he acknowledges. "Matching contributions are typically 3 percent of the overall wage base. So, if your wages are $50 million, 3 percent of that is $1.5 million," he says.

"If [an employer is] skating on the edge, that [matching-contribution program] could mean the difference between making the mortgage payment and not," he says. "It's certainly not an inconsequential expense for the company."

While it may not make fiscal sense for every company that may have suspended or reduced its matching program to restore it, there are still options on the table. Indeed, the PSCA survey finds that nearly 64 percent of plans surveyed have changed the investment lineup in their 401(k) plans in the past year, up from 56 percent in 2010 and 20 percent in 2009.

Wray calls this development "dramatic," but notes that "the historically high changes in the investment lineup will probably not continue" for much longer, because two of the main drivers of such changes in 2008 and 2009 aren't as compelling now -- namely, market volatility and a desire by companies to give participants a managed alternative, which led to a rapid inclusion of target-date funds and managed accounts in plans.

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"We'll see continued interest in improving the investment lineups this year," he says, "but nothing on the level like we saw in 2011."

HR's Restoration Role

Wray says HR has an important role to play in restoring the match at companies that may not have already done so, but he acknowledges there are roadblocks.

"HR people are challenged right now," he says. "Companies are so economically focused on the short term that HR people need to ... identify their goals in quantifiable terms to management, so that they can better understand the positive impact such a move can have.

"HR [professionals] are the ones who should be saying, 'We should be doing the match,' " he says, "and they need evidence that this makes a difference," through metrics -- such as employee-satisfaction surveys -- in order to show the program has a positive overall effect on the workforce.

"Having quantification now is important," he says, "because, for the people in the corner office, it is not sufficient to just go in and say, 'We need a good retirement plan.' "

Indeed, Andrae says, the generous retirement offerings at The Motley Fool -- along with perks including a healthcare plan that has not seen a premium increase in six years -- go a long way in keeping employees happy and engaged in their jobs, citing a retirement-plan participation rate of 85 percent and an annual turnover rate of just 7 percent.

"When people come to work for you, their 401(k) match is part of their compensation. They were willing to take a hit on that because they knew it could save their jobs," she says.

And for Gross, the return of the match "was a signal that maybe we could breathe a little easier now. And that maybe this recession was behind us, and that feeling was maybe even more important than the money."

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