Communicating 401(k) Benefit Cuts

We recently discussed Conflicting Surveys, one survey found that a Majority of Employers are Maintaining or Increasing Their 401(k) Match, and three other surveys found that Employers are Cutting their 401(k) Match. No matter what the studies say, if your company is one of the companies cutting a 401(k) benefit, it is important to properly communicate the cut. The Challenge of Communicating 401(k) Cuts stresses the importance of over-communicating and provides some tips to ensure employees get the accurate and legal information they need in a compassionate manner. It recommends that the announcement come from the top leadership of the company and include the reasons for the cut (e.g. avoid layoffs). Managers and HR should be equipped to answer questions, and any legal disclosure documents, such as the Summary of Material Modifications (SMM), should be accompanied with an explanation of the notice:

Making sure that managers and HR are prepared for a change like this is essential to communicating effectively with employees, experts say.

"The last thing you want is an employee asking a manager about their reaction to this kind of move and the manager saying, 'How the heck do I know?' " Samuelson says. "Managers aren't there as cheerleaders for making the change, but they can be a support network about why such a change needs to be made."

Managers also can be helpful in explaining the business case behind the decision, which is crucial, experts say. Obviously most employees know that the economy is in a recession, Samuelson says. "But employees need to understand that this isn't simply a way to save money," she says. "It's about being able to ensure the viability of the business."

If companies are doing this to avoid layoffs, they need to say that, experts say.

When communicating a cut or a reduction in the 401(k) match, employers are required to send out legal information explaining the change. This can be a big stumbling block for companies because legal language is often difficult for employees to understand, experts say.