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Mass. presses providers on lump-sum 401(k) contributions

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Massachusetts securities regulator William Galvin told the 25 largest 401(k) pension providers in the state in a Monday letter to tell him by March 10 if they have shifted to year-end lump-sum employer matching and to detail the potential risks such a move creates for employees.

Galvin cites AOL’s reversal earlier in February of its plan, abandoned after employee pushback, to make matching contributions at the end of each year instead of each pay period.

Galvin notes in his letter the moves by Deutsche Bank, IBM and Charles Schwab to shift their employees’ benefits by paying matches in an annual lump sum.

“At a time when most Americans have much of their retirement savings in these 401(k) plans, it is crucial that they are made aware of the risks involved when a company shifts to a year-end distribution,” Secretary Galvin said.

The Massachusetts Securities Division asked the 25 entities that administer a 401(k) plan in the state to provide the number of employers whose plans they administer who have shifted to year-end lump-sum matches, the number of affected employees, and the date of the change. It also seeks the disclosure information provided to plan participants as to the potential risks connected to lump-sum distributions.

Galvin noted that while companies save money by making a lump-sum payment into 401(k) accounts at the end of the year, “employees miss out on gains that accrue to their account during the year. Employees who leave during the year get no matching funds for that year.”

Also, he said, “the year-end employer contribution could go into a declining market.”