Conflicting Surveys: Employers Cut 401(k) Match

Last week we discussed how a survey found that a Majority of Employers are Maintaining or Increasing Their 401(k) Match. The Wall Street Journal cites three surveys that contradict that message in U.S. Employers Cut 401(k) Matches:

Some of the most dramatic numbers came Wednesday in a report released by Spectrum Group. The relatively small survey of 150 plan sponsors in February found that 34% of U.S. employers have reduced or eliminated the company match to the retirement savings plan in the past 12 months. Another 29% plan to make changes in the next 12 months. The margin of error was plus or minus eight percentage points.

"It's an immediate cash-flow reduction for companies," said George H. Walper Jr., president of Spectrum Group.

A separate Spectrum online poll of 400 active retirement-plan participants found that 20% of employees had decreased their savings rates and another 5% planned to in the next 12 months. Another 14% said they plan to increase their savings. Spectrum said the research had a margin of error of plus or minus 4.9 percentage points.

"Do you spend less on groceries or do you save less in your 401(k)?" said Mr. Walper. "These are tradeoffs people are making."

A report released in February by consulting firm Watson Wyatt found that as the recession continues, workers have been hit hard by salary freezes, higher health-care costs and reduced 401(k) matching contributions.

That survey of 245 large U.S. employers found 42% had frozen salaries. It also found that 12% had reduced 401(k) matches, and another 12% expect to do so.

The article also cites data from two major 401(k) service providers:

Some firms are reporting much lower declines in matches than either study. Matt Diliello, product manager for retirement-plan services at T. Rowe Price, said 7% of large clients have made some sort of change to their match as of March 25. "We think a good portion of those changes are temporary," he said.

Fidelity Investments, the nation's largest provider of workplace retirement-savings plans, said as of the beginning of 2009, about 4.6% of its plan sponsors had suspended or reduced their matches. Most of the changes were made by small businesses, it said.

Fidelity recommended that companies, rather than cutting the match entirely, consider other approaches such as adjusting the match formula or limiting eligible populations.

Hat tip to Bill.