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Companies Ditch 401(k) Match

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A growing number of companies, searching for ways to cut costs, are suspending their matching contributions to workers' 401(k) retirement accounts.

Such a move by broker Charles Schwab & Co. won wide attention in March because the company has been outspoken in its support of the investment vehicle. But Schwab is not alone.

El Paso Corp., CMS Energy Corp., The Goodyear Tire & Rubber Co., Ford Motor Co. and Tech Data Corp. are among the companies that have suspended matching contributions to 401(k) accounts over the past year. This week, Prudential Securities became the latest employer to do so.

"We needed to look for ways to achieve expense reductions that were temporary in nature and did not threaten our ability to grow and take our business forward when things turn around," said Schwab spokesman Glenn Mathison, whose comments generally were echoed by other companies suspending matches.

Many employers adopted 401(k) accounts during the late 1980s and 1990s as a replacement for traditional pension plans. They became widely popular with workers, who saw the spiraling stock market as a way to ensure a comfortable retirement.

Employers' average matching contributions, which peaked at 3.3 percent of workers' pay in 1998 and 1999, fell to 2.5 percent in 2001, according to the most recent data available from the Profit Sharing/401(k) Council of America, an industry group.

While many companies have pared or suspended their contributions to retirement accounts recently, most have been employers with so-called "variable" matches that are linked to profits, said David Wray, president of the profit sharing council.

Companies have reduced these variable matches during past economic downturns, he said.

"I think it remains rare that fixed matches are being eliminated or suspended," Wray said.

But the distinction — usually written in fine print — means little to workers accustomed to years of consistent employer contributions, said Joe Hessenthaler of Towers Perrin, a human resources consulting firm.

The change is part of broader, and in most cases temporary, efforts to cut expenses. When companies do return to matching, Hessenthaler said, many will more clearly tie 401(k) plans to company profits.

"What's the message you (the employer) are trying to get out? You're trying to get out that this isn't guaranteed. If we do well, you're going to do well. If we don't do well, you're not going to do well," Hessenthaler said.

Some of the companies that have suspended matches said worker participation in 401(k) accounts has dipped slightly. The 401(k) council reports overall participation in the large plans it surveys has dropped from 82.9 percent in 1998 to 78 percent in 2001.

The decline is mostly among workers hired in the past few years, who have decided not to sign up for plans because of the depressed stock market and reduced company matches, Hessenthaler said.

But suspended contributions, taken together with the weak stock market and other problems, could lead more workers to exit the plans, said Alicia Munnell, director of the Center for Retirement Research at Boston College.

"Many people didn't realize they were dealing with a profit-sharing plan instead of a conventional pension plan where contributions are set," she said. "They are tough retirement vehicles in my view and this idea that employer can match one year and not match another, I think is another factor that makes them less than perfect vehicles for people to do their retirement savings."

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