Even with the economic downturn, a new study shows employers are finding ways to aid employees in saving for their retirement.
A study from Diversified Investment Advisors indicates that at corporations with 1,000 or more employees, 46 percent of plan sponsors are planning to reduce or eliminate employer contributions to their 401(k) plans or have already done so.
“The events of the last year have forced many corporate employers to scale back on their 401(k) contributions or cut them entirely, but this does not tell the whole story,” explained Laura White, vice president for Diversified Investment Advisors, a national investment advisory firm specializing in retirement plans. “We found that those employers that offer a defined benefit plan, as well as those with fewer than 10,000 employees, were most likely to eliminate the employer contribution to their 401(k) plan. In fact, most of the plan sponsors surveyed maintain multiple plans, so employers are still contributing to their employees’ retirement in other ways.”
For example, she said, 46 percent of 401(k) plan sponsors surveyed also offer a 401(a) plan, 87 percent have a traditional pension plan, and 51 percent offer a cash balance plan.
What Your Peers Are Reading
In addition, employers are actually increasing their payroll despite reducing headcount as well as increasing their benefits budgets. According to Diversified’s survey, plan sponsors are increasing their benefits budgets to 27.9 percent of payroll from 26.6 percent. “Plan sponsors are balancing their need for fiscal responsibility with the needs of their employees,” White noted.
Of those employers that still contribute to their 401(k) plan, Diversified’s study found that more than 90 percent funded their plan in part with employer contributions, with the majority relying on matching contributions (78 percent) as opposed to a stated percentage of salary (41 percent) or a fixed amount (16 percent). The most common matching formula continues to be $0.50 on the dollar up to 5 percent to 6 percent of compensation.