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Report Shows Employers Are Finally Restoring (401)K

Photodisc/Thinkstock(NEW YORK) -- After scaling back during the recession, it seems employers are starting to feel generous, or less stingy, at least in terms of matching employee 401(k) contributions. According to a new report, 75 percent of employers have restored their retirement fund matches after cutting them during the financial crisis.

Certain sectors were more generous than others. Manufacturing and health care companies had the highest reinstatement rate, at 88 percent. Entertainment had the lowest reinstatement rate: 50 percent.

Global consulting company Towers Watson analyzed 260 employers that suspended or decreased their 401(k) matching contributions from January 2008 through January 2010. The firm, headquartered in New York City, found that of those companies that reinstated the match, 74 percent restored to the same level of match as before the financial crisis.

The most frequent employer 401(k) contribution formula before and after the suspension matched 50 percent of employees’ salary deferrals, up to six percent of pay.

About 23 percent of employers restored the match at a lower rate. Among these companies, the reinstated match was slightly more than half of their original contribution.

Only three percent of those employers increased their employer match, increasing the formula by an average 1.4 percentage points. But in all but one of these cases, the increase was actually associated with a pension close or freeze, and the higher match was intended to make up for some of the lost pension’s benefits.

Of the 260 companies in the sample, 231 had completely suspended their matches, while 29 had only changed their matches, such as reducing benefits. The median duration for match suspensions was 12 months.

Copyright 2011 ABC News Radio

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