Retirement accounts already battered by a steep market decline may get hit again as several companies suspend or reduce their 401(k) match to save cash.
Workers at General Motors Corp. and Frontier Airlines Holdings Inc., for example, could potentially lose thousands of dollars in company contributions from their retirement accounts.
GM, which recently announced it was suspending company matches for its 32,000 eligible salaried workers, said Monday its U.S. auto sales plunged 45 percent as it struggles along with competitors to survive the credit crisis and financial market turmoil.
“People know these actions are necessary to conserve cash and maintain viability,” said Dan Flores, a company spokesman.
Matching contributions average about 11 percent of a company's profits, according to a recent survey of more than 1,000 companies by the Profit Sharing/401k Council of America.
Now, with the economy driving profits down, some companies are forced to cut costs and look to their 401(k) contribution as a way to eliminate millions of dollars in spending.
Frontier Airlines suspended its 401(k) match on June 1 as part of a wider effort to cut costs as it works its way through Chapter 11 bankruptcy protection. The airline's plan matched 50 percent of employee contributions, up to 10 percent of salaries. The company reported that the match cost it $4.2 million in 2006.
“This is a recession-type of response. These employers are really up against it and they have to decide to cut somewhere and this seems like the least bad place for them to cut,” said Alicia Munnell, director of the Center for Retirement Research at Boston College.
Last year more than 58 million U.S. workers set aside a portion of their paycheck in a 401(k) retirement plan, and some industry surveys indicate as much as 90 percent of employer-sponsored plans provide a company match.
There are substantial savings to be had for companies large and small, but comprehensive benefits are vital to attracting top talent and staying competitive.
Jamie Bloomquist, 40, works for Maine Boats, Homes & Harbors Inc., of Camden, Maine. Even with just eight full-time employees, he enjoys a 3 percent match on his account.
“It seems to me that would not be the best place to start cutting because it does say something about their commitment to their work force and their commitment to you as an employee,” he said.
For workers who lose the company match, it's essentially a pay cut, said Tom Stritikus, 38, of Seattle, who gets a match of 7.5 percent from his employer.
“People get enraged with they don't get cost of living adjustment for one or two years,” said Stritikus, an associate dean at the University of Washington. “But to think about taking an actual cut to your salary is quite a daunting proposition.”