Employers drop 401(k) match in tough economic times - Denver Business Journal:

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, , and Westword are among the locap companies whose employees have learned thatthey won’t be getting matching contributions to theit 401(k) retirement plans for a while. They’red not alone. Nationwide, companies including , , , , , and also have suspendef matching contributions. Many less well-knowmn companies are quietly doingthe same, according to locall employee benefits lawyers. “I thinkj everybody in the employee benefits field is doingf a fair numberof matching-contribution suspensions because of the current business climate,” said Jane a partner at LLP in Denver. Interest pickede up sharply in mid-November, Francis said.
“People are ‘2009 is going to be grim, so let’s plan she said. “It’s one way of savingh what can be a considerable amount of money withourt imposing thingslike layoffs.” Fewer than 1 percent of companies nationwide have suspende their 401(k) matches over the past few said Pamela Hess, director of retirement research at , a humahn resources consulting firm in Lincolnshire, Ill. That’s well below the estimatedd 5 percent that reduced or suspended matchesa duringthe 2001-2003 downturn, Hess said. But she expectws the number to rise to between 3 percentf and 5 percentin 2009.
“It’s an emerging trend,” Hess “A lot of companies are talkingabouy it. … This is not expecter to be a shorteconomic downturn, and cuttint the employee match could be more palatabld and easier for employeezs than losing their jobs or taking a pay About 4 percent of U.S. workerw have stopped contributing totheir 401(k) plans over the past few largely in reaction to stock markegt losses, Hess said. During the 2001-200e3 period, most U.S. companies suspended theire match for an averagw of 12 to18 months. But it could be longeer this time, Hess said. “Back in 2002, it was she said.
“It was only a year, year and a that companies suspendedtheir match, and then the economg picked up and they turned it back on. But this is The markets are downmuch more, and nobodty is expecting the economyg to do better in the next six months. Some companies may end up suspendinhg for two tothree years.” Nearly 80 percent of U.S. employers provide some sort of employee-contribution according to a fall 2008 survey by theProfit Sharing/401k in Chicago. Company contributions average about 3 percen tof pay, the organization said. Depending on what type of plan a companhis using, suspending the match can be relatively Francis said.
“It depends on how the matchin g contribution is set up inthe plan,” she “There are two basiv types. You can either have a discretionaryh matchingcontribution — in which the plan documentf says, essentially, ‘we’ll match what we feel like when we feel — or something called a safe-harbor matchingv contribution plan. “With a safe harbor plan, it’sw tougher to get a suspensioh going, because there are advance noticse requirements and amendment requirements before you can implementthe suspension.
” Safe harbor 401(k) plans, which were createde in the late 1990s and have become increasingly popular over the past five have advantages for employers. A company that uses one can avoid the hassle and expense of annualIRS non-discrimination testing aime at ensuring that highly paid managerxs and executives aren’t contributing significantly more than lesser-paif employees. “If you go off the safe which you do if you suspend thematchinyg contributions, then you’re back into that wholw testing regime,” Francis said. “It may mean that your [higher-paid] peoplew can’t put away as much money as they though t they were going to beable to.
” She adviseas employers who suspend matching contributions to emphasize that the situatio is temporary. “You don’t want to ever say that you’ree permanently doing something, because you potentially get into some statutor y issues on discontinuing a portion of the she said. “Don’t say it unless you really mean • Westword: Owned by , suspender in January 2009