The 401(k) match has been something employees like myself just took for granted for decades now. While the benefit varies company to company, the conventional wisdom had always been to make sure you contribute at least enough to max out the company match since it’s free money. In essence, if your company provides a 50% match on the first 6% of your contributions, that’s a free 3% boost every year (tax free until retirement). What we saw throughout 2008 and 2009 though, was many companies ceasing to match employer contributions. While viewed as temporary, it begs the question as to whether we’ll see a resurgence in the 401(k) match or actually see more of them going away.
Why 401(k) Matches are Coming Back
There was a recent piece on CNBC outlining the companies that are bringing back the 401(k) match. Now, they cited companies such as American Express and JPMorgan as examples of companies reinstating the plans as evidence that there’s a rebirth of the 401(k) match by employers. What they failed to mention is that these are firms that were on the brink of extinction and they were basically forced to throw out everything but the kitchen sink in order to preserve capital due to their dumb bets on real estate and consumer debt. Now that the companies are flush with cash from government bailouts and a modest recovery, it’s not a stretch to reinstate the matches. While the emploment expert cited in the article estimates that between 40 percent and 60 percent of the companies that took out the match have restored it, he also qualified his statement with the fact that his data is very limited and it’s not clear what’s going on throughout the whole country.
There are some logical reasons to expect employee 401(k) matches to return of course. Namely, it’s a great employee talent acquisition and retention tool. If you were confronted with two similar job offers and one had a company match, wouldn’t you logically choose the one with the match, all other things being equal? Taking this a step further, even if you had an offer for a modest pay increase at another firm, if they weren’t offering a match and generous 401(k) program, would you be as apt to jump ship?
Another aggregate observation is that companies are flush with cash right now from massive productivity improvements and employee separations. Basically, they’re doing more with less. So, an optimist might suggest that with more cash on hand and fewer employees, companies would be more generous with their cash hoardes. Unfortunately for the working stiff, that’s not how business works. Companies pay the bare minimum to retain the talent they need, just like as an employee, you seek the maximum amount of compensation for a given job.
Why 401(k) Matches are Going Away
Personally, I’m surprised more companies aren’t doing away with them and I wouldn’t be shocked to see companies either scaling back matches or doing away with them altogether even during this modest economic recovery. Why? Because they can. Employees are freaking out. The real unemployment/underemployment rate is around 15-16% right now. That’s 1 in 6 people in the US. If your company cut the much vaunted 401(k) match right now, would you leave? Heck, the company you move to may very well do the same, or let you go.
This is how these boom/bust cycles go. During the good times, employers are struggling attract top talent and keep their top performers from jumping ship. Benefits are generous and bonuses are high. Then during the downturn, business ratchets down and squeezes all the productivity they can out of as few employees as possible to conserve cash and remain profitable. Seeing as how it’s unlikely that we’ll see a (reported) unemployment rate below 9% over the next few quarters, if you were a company looking to increase the bottom line and “look out for shareholder interests”, wouldn’t you at least think about cutting out the 401(k) match knowing full-well that it would probably have no impact on employee retention? I mean, sure, it could affect morale, but they’re not leaving. You could cite increasing healthcare costs, the recession, fear of a takeover and the need to conserve cash or whatever…all while saving a substantial amount of money for your shareholders (and increasing your options account balance!).
Has Your Company Cut Your 401(k) Match?
Do You Think Matches are Coming or Going?
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