The good news: Most employers are reinstating 401(k) matches, after suspending or reducing them following the economic collapse in late 2008. The bad news: Not all employers have reinstated yet, and some that have are doing so at a lower percentage, Towers Watson announced yesterday.

According to the analysis, 75% of 260 employers that suspended their 401(k) matching contributions have now restored them. Among those employers, about three in four (74%) reinstated the matching contributions to their previous level, while 23% of employers restored them at a lower rate. Just 3% increased their matching contributions to a higher rate. The most frequent employer match formula before and after the suspension matched 50% of employees' salary deferrals, up to 6% of pay. The median duration for match suspensions was 12 months. 

"We know that most employers are looking to reinstate when they can afford to. When that will happen is a bit of a challenge because it's contingent on the economy and how the company is doing within the economy," says Robyn Credico, a senior retirement consultant at Towers Watson.

The Towers Watson analysis is based on 260 organizations of all sizes that suspended their matching contributions. The suspensions occurred from January 2008 through January 2010, though most (83%) occurred during the first half of 2009.

Defined contribution plans without a match have much lower participation rates than those with a match, which could cause problems for employers down the road, as older employees might not save enough to retire in a timely and efficient manner.  

In 2010, older Americans (55 and older) reached a peak 40.2% of the workforce, an increase from 1993 when just 29.4% of older Americans worked, according to the Employee Benefit Research Institute. “If you think about that from a financial perspective, the older workers tend to be more expensive, and they might not be the most engaged workers,” Credico observes. “They're staying because they have to, not because they want to.”

Entrenchment by older workers means for some companies, young hires are not promoted. This might behoove employers to more highly promote retirement benefits — even to younger workers coming through the ranks — using a reinstated match to entice participation. However, with recent economic turmoil and the possibility of a double-dip recession, companies may suspend their contributions yet again.

“When we spoke to clients about reinstating, they were nervous to commit to something,” Credico says. “Some companies said they wanted to tie the match to the profits of the company, but ultimately most didn't do that.”

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