Companies reinstate their 401(k) matches - slowly

Companies are starting to restore matching contributions to their 401(k) plans after extensive cost- cutting and signs of improvement in the economy. Experts said that these companies represent the first batch in what could be a major round of restoring company matches in coming months. In recent weeks, executives at Kulicke & Soffa Industries Inc., The San Diego Union-Tribune LLC and Zep Inc. said that they will resume making matching employee contributions to their 401(k) plans. A fourth company — Starbucks Corp. — said in July that it will make a matching contribution for this year, after last December making its 401(k) plan match discretionary, based on company profitability, because of concerns about the company's financial health. These announcements follow moves by Dollar Thrifty Automotive Group Inc. and The Goodyear Tire and Rubber Co., which reinstated their matches in January. Goodyear stopped making contributions to its 401(k) in 2003, and while it has reinstated its match, it has frozen its $4.26 billion pension plan. “There are certainly other companies that are restoring contributions, and many others that are now talking about it,” said Bill McClain, a principal for Mercer LLC, who declined to disclose any names, citing company policy. “In some cases, we're going to see a return to a discretionary match or to a lower-rate match, but we'll see more companies returning as we head into 2010.” In a filing with the Securities and Exchange Commission last month, semiconductor equipment maker Kulicke & Soffa said that it will resume making matching contributions to the employees' 401(k) savings plan. The match, which according to the filing was halted in January, was scheduled to resume Sept. 1. Company spokesman Thomas Johnson referred calls to David Anderson, vice president and general counsel, who didn't return a call seeking comment. The plan had $37.98 million in assets as of Dec. 31, according to another filing. The Union-Tribune's matching contributions resumed in May after the newspaper was purchased by Platinum Equity LLC, a private-equity firm, said Drew Schlosberg, the director of community and public relations. The match had been suspended in February. Mr. Schlosberg declined to disclose the size of the 401(k) plan or the details of its match program. Chemical company Zep restored a portion of its 401(k) matching contributions in July after halting contributions in January. The plan, which matched 50% of employees' salary deferrals up to 6% of salary, now matches 25 cents on each dollar, up to a maximum of 6% of salary. The company hopes to restore the match in January, said chief administrative officer Robert Collins, unless “something drastic happens to the economy or our business.” The plan had $127.3 million in assets as of Dec. 31, according to an SEC filing. Indeed, companies now seem more eager to restart their suspended matching-contribution plans than they did a few months ago.

COMFORT LEVEL

According to a Watson Wyatt Worldwide survey of 175 large companies conducted last month, 24% of the respondents said that they plan to reinstate or increase matching contributions within the next six months, compared with just 5% in a June survey by the firm. Another 24% said that they plan to restore their contributions partially or fully within the next year. Of those, 67% said they will go back to the contribution level held before the suspension, 12% will do so at a lower level, and 21% said the match will depend on the company's earnings. “The data indicate that hopefully, these companies have right-sized their businesses and are more comfortable with the economy,” said Robyn Credico, director of the North America plan management group practice at Watson Wyatt. “I think we'll start to see more and more companies restoring their matches.” Thomas Harty, senior consultant at Portfolio Evaluations Inc., agrees. “From a business perspective, we've gone from companies' just looking to keep the lights on to where they're now getting back to business as usual and starting new projects,” he said. “Restoring a match is one of those key decisions investment committees and boards will be making as things continue to improve.” Nearly 300 employers have announced plans to reduce or suspend their matches since June 2008, according to the Pension Rights Center. About 10% of the 1,500 401(k) plans administered by The Vanguard Group Inc. have either reduced or eliminated their employer match, said spokeswoman Linda Wolohan. At Fidelity Investments, nearly 8% of the 17,500 plans administered have done the same, according to spokesman Michael Shamrell. At the very least, experts agree that the number of companies suspending matches has leveled off. Trisha Brambley, president of consulting firm Resources for Retirement, said that while all her clients called her to discuss reducing or suspending matches at the end of last year, those inquiries have stopped. “Everybody that was going to do it did it,” she said. Driving companies to resume making matches, Mr. McClain said, is the desire to stay competitive and retain talent as economic conditions improve. “The decision to match has a huge impact on employee loyalty,” he said. “It really sends a message: Companies are looking to restore [matches] as quickly as possible to keep key employees.” Many companies that suspended their matches are likely to switch from a match based on a fixed portion of salary to discretionary matches based on company performance, Ms. Credico said.

COMPANY STOCK COMEBACK

Another strategy being discussing by some companies that have suspended matches is to match contributions with company stock instead of cash, said Matthew Hutcheson, who runs Matthew Hutcheson LLC, an independent-fiduciary firm. “While this strategy is cheaper for the company, it can be dangerous for participants and carries with it inherent conflicts of interest and important fiduciary considerations,” he said. “If plan sponsors are sensitive to those considerations, such transactions can be prudently managed.” Not everyone predicts a big wave of restoring matches. “When companies began suspending, there was a herd mentality, with a lot of companies jumping in to do something. The bounce-back will be more gradual,” said Rob Vetere, senior vice president at Diversified Investment Advisors Inc. “I don't predict a lot this year; we'll likely see it ramp up a little in 2010,” he said. “The big question is whether or not all companies will restore their matches, and for those that do, whether they'll bring them back to their previous levels.” Jeff Nash is a reporter for sister publication Pensions & Investments.