It’s Back, not a Moment Too Soon: The 401(k) Match

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When times got lean three years ago, a host of companies stopped matching employee 401(k) contributions and you had to wonder if the benefit would ever be restored. Temporary measures that pad the bottom line have a way of sticking around – like the toll on a bridge that has long since been paid for.

But, happily, the 401(k) match is back. An analysis of 260 companies that had reduced or stopped their 401(k) matching contributions at the start of the recession found that 75% have since restored the benefit, according to retirement consultants Towers Watson. Most restored the match to pre-recession levels. One in four reinstated at just half the pre-recession level. Some 3% reinstated at a higher level but used the moment to eliminate their traditional pension plan.

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The vast majority of companies (87%) with a 401(k) match maintained their program throughout the downturn. Still, the return of the 401(k) match at companies that had slashed the benefit reflects a healthier business outlook. This renewed sense of hope, however modest, is also evident in many companies’ decision to reinstate or raise their stock dividend. The last two years have seen a crush of dividend hikes following a barrage of reduced payouts in 2008-2009. Who knows? Maybe employment will follow.

Matching 401(k) contributions are critical to the nation’s retirement readiness. A typical match is 50% of employee contributions up to 6% of annual salary. That comes to a guaranteed $1,500 annual infusion for someone earning $50,000 a year and saving enough ($6,000 pre-tax) to get the full benefit.

Most advisers recommend that you contribute at least enough to get the whole company match almost regardless of your plan’s investment options. Studies have shown that 401(k) plans with a matching element have far higher rates of participation.

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A similar wave of reduced 401(k) matches occurred after the 2001-2002 recession, suggesting that companies see this benefit as less than sacred. Which is a shame because it isn’t easy getting people to sign up as quickly as they should or to participate to the fullest extent allowed. Every time an employer takes something away from this important retirement pot it’s that much harder to get workers back in the game, and they lose valuable time toward saving for their later years.