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Some Considerations When Reinstating Your 401k Match

    
Charles Schwab notes that as our economy begins to show signs of improvement, one of the most difficult decisions many companies will struggle with is whether or not the time is right to reinstate the 401k match. While there is no question that matching contributions were a serious casualty of the recession, Schwab has found that anywhere from one-third to one-half of firms that stopped or reduced their contributions are thinking about reinstating them during 2010.

As companies begin to evaluate their programs to reinstate the match, below are several key areas that employers should pay particular attention to:

Benchmarking Around Peers and Goals

Employers should compare its plan match formula and overall structure to others in their industry, including similar sized companies and those in their geographical region to see if their retirement plan is still competitive and properly designed to attract the candidates it considers desirable.

Breaking Down Demographics

By breaking down plan participants by their salary level, years of service, position and age, employers can observe participation and savings rates for each category. This will allow firms to better identify any weak spots that need shoring up.

The Plan's Match Ceiling

Schwab's research shows that employees will most often set their deferral rate at the plan's "match ceiling"- the amount of salary they must defer to receive the maximum employer matching contribution. Employers should reset to a higher match ceiling to encourage employees to save more.

Investment Education

The reinstatement of the match is also a great time to rethink other key aspects of a 401k plan. Employers should take the opportunity to remind employees about other strong features of its plan including free advice sessions and workshops, target date fund options that make diversifying and rebalancing easier, or a Roth 401k plan option. Schwab has found that on average, employees who receive consultations more than double their savings rates because they feel more confident about investing and are happier with their plan.

Automatic Savings Rate Increases

While auto-enrollment is increasing in popularity, far fewer companies take an important next step: automatically raising participants' deferral levels each year. For employers this can be a particularly smart move as auto-enrollment plans usually start participants off at a relatively low deferral level and an annual bump-up can help put employees on a stronger path to a more secure retirement.

Rick Meigs, President, 401khelpcenter.com, LLC

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