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Commentary
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1st step: restoring 401(k) benefits
Amid recovery, some firms are restoring retirement benefits; more can be done to boost enrollment.
March 18, 2004: 8:01 AM EST
By Myron Kandel, CNN Financial Editor

NEW YORK (CNN) - When the economy turned down, a number of companies moved to cut costs by reducing or even eliminating how they matched their employees' contributions to 401(k) pension plans.

That was a blow, of course, to those employees, and even forced some of them to re-evaluate their plans for retirement.

But now that profits and stock prices are up and the economy has improved, some companies are restoring at least part of those cuts. There's no headlong rush, but it's a move in the right direction.

Ford Motor, for example, suspended its contribution two years ago. It had been matching 60 percent of an employee's contribution of up to 10 percent of the worker's salary. Now, it has reinstated that 60 percent benefit, but only up to 5 percent of the employee's salary. However, it has suggested that it might go back to the previous 10 percent later on.

General Motors, Charles Schwab and Chrysler are among the other companies that have restored at least some of the cuts they've made in their 401(k) contributions.

Needless to say, I like this idea, and I urge other companies that cut their matches to do the same.

As businesses have largely replaced the old defined-benefit plans that offered retirees a specified percentage of their previous incomes, defined-contribution benefits, such as 401(k) plans, have become hugely important for working Americans.

The Profit Sharing/401(k) Council of America estimates that the number of such plans totaled some 400,000 at the end of last year, with a staggering $1.6 trillion in assets under management.

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In an in-depth survey of 1,046 plans, the council found that at the end of 2002 those plans covered nearly 3.2 million participants and had $244 billion in assets. Fifty-one percent of them offered an employer match of 50 cents on the dollar, while 21 percent matched dollar for dollar. Most of the plans matched the first 6 percent of employee contributions.

One of the things that bothers me is that only 80 percent of eligible employees in the companies surveyed took advantage of the 401(k) plans offered, thus missing out on the tax-deferral and employer-match advantages. Sure, some people, particularly younger workers, live on every penny they earn. However, by not participating, they not only fail to save for retirement, but they also forgo the free money that's being offered them in the form of employer contributions.

That's a shame, and maybe companies should make a better effort to demonstrate the advantages of such plans. And perhaps colleagues and peers should add their encouragement as well.  Top of page




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Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.