Slump Leads More Firms To Halt 401(k) Matching

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General Motors workers leave the GM Powertrain plant in Warren, Mich. i

General Motors workers leave the GM Powertrain plant in Warren, Mich. GM is among the companies suspending their match programs. Bill Pugliano/Getty Images hide caption

toggle caption Bill Pugliano/Getty Images
General Motors workers leave the GM Powertrain plant in Warren, Mich.

General Motors workers leave the GM Powertrain plant in Warren, Mich. GM is among the companies suspending their match programs.

Bill Pugliano/Getty Images

It's definitely not a pension, but for tens of millions of people, a matching contribution into a 401(k) account is as good as it gets.

A typical 401(k) plan might have the employer matching employee contributions dollar for dollar up to 4 percent or 5 percent of an employee's salary. But some companies are cutting back: General Motors, Dollar Thrifty Automotive Group, Frontier Airlines and real estate giant Cushman & Wakefield are among those suspending their match programs.

Newspaper publisher Lee Enterprises hasn't done away with its program entirely, but on Halloween, Lee informed its workers that it will cut its 401(k) contribution by more than two-thirds.

Mike Utter works as a pressman for the St. Louis Post Dispatch, one of more than 350 Lee-owned publications. He is also the president of his local pressman's union.

Utter has had a pension plan for most of his career. But in January 2007, Lee switched from its pension plan, promising increased 401(k) contributions. As a result, Utter received an additional 8 percent of his salary in his 401(k) account, as long as he put in 5 percent himself. That company contribution has now been whittled down to 2.5 percent.

Given the condition of the stock market, some people might not be too worried about less money going into their already-depleted 401(k) accounts. But Utter says he feels betrayed by his company. "I realize that business is bad and the newspaper business is bad," he said. "But I don't think it warrants this."

Utter's connection with the newspaper goes way back. He's been at the paper for 40 years, and his father was a pressman before him.

"We were good employees and have tried to make this company a big success," he said. "It's a slap in the face to me personally over that. And I think it's a disgrace to do that to employees."

Dallas Salisbury, president of the Employee Benefit Research Institute in Washington, D.C., urges employees such as Utter to have a different perspective. He says that for many businesses, tough economic times mean they have to make serious cuts to stay viable.

"If I have to save $1 million, would I rather let people go or adjust the 401(k) contribution for a temporary period?" Salisbury said.

Lee Enterprises says that's the dilemma it faced. Company spokesman Dan Hayes explained that the newspapers' ad revenues are down. While Lee is still profitable and has suffered less than many other newspaper publishers, Hayes says the 401(k) cut was a way to avoid further staff reductions.

Alicia Munnell, director of the Center for Retirement Research at Boston College, says the decision isn't simple. "It's hard to weigh whether suspending the match is better or worse than laying people off," she said. "It affects everyone a little instead of a few people dramatically."

It isn't the first time big companies have suspended their 401(k) matching programs. In 2001, more than a dozen businesses did the same thing. Most have since put them back in place.

This time around, 2 percent of U.S. companies have reduced their 401(k) benefits, and 4 percent are considering it in the next year, according to a recent survey from Watson Wyatt.

Munnell thinks suspensions could soon become more popular.

"It makes it more socially acceptable to do it, once the first one does it," she said. "There's been a precedent established. I think there will be a lot of companies following GM and the other companies that have taken this step."

Ultimately, Munnell says, it's the length and severity of the economic crisis that will determine how many companies end up cutting retirement benefits.



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