Some employers shift 401(k) matches
By Shannon Mullen
Friday, March 7, 2014 - 17:24 - Marketplace
It's not every day that people get fired up over retirement planning, but
that's what happened at AOL
last month when employees lashed out
over the company's move to make year-end, lump-sum contributions to their 401(k)
plans instead of matches every pay period.
In the aftermath one state regulator wants to know how many other companies
have made that switch. Massachusetts Secretary of State Bill Galvin says most
people are less than mindful about saving for retirement. "Especially
younger employees. When they get their 401(k) statement they toss it in the heap
with everything else. I know I was guilty of that for many years."
That's a big mistake, Galvin adds, because pension plans are a thing of the
past. He says American workers are
more dependent than ever on their 401(k)s for retirement savings, and they stand to lose money if their company
contributes only once a year. "Theyfre
going to suffer the loss of whatever benefit of compounding – that is having
that money in their account earning interest for that whole year
–would be." Add to that if
you leave your job mid-year you can kiss the entire contribution goodbye.
Galvin says people deserve to know in
advance when their employers stop making 401(k) matches with every paycheck, and
why, so hefs asked two-dozen of the
countryfs major 401(k) providers to tell him by March 10th how many companies
have switched to once a year. The
largest of those providers, Fidelity Investments, tells Marketplace: itfs a small number
– and mostly large employers.
"You have increased cost of benefits; that has to be covered," says economist Robert Merton, a Nobel Laureate in Economics and a
Professor of Finance at MIT. He points
out that some of the companies in question could be trying to avoid other, more
painful cuts such as health care
benefits, but he says they should
be transparent about it. "You have to
not look at the one act, you have to look at why they did it, or at least why
they said they did it. Almost everything is a tradeoff, so being informed about
it is helpful."
Massachusetts Secretary of State Galvin says Congress might have to get
involved if more companies move to once-a-year matching.
At the Employee Benefits
Research Institute, president Dallas Salisbury says the rising cost of health care could
drive that trend, and workers should expect changes. "Overall
costs in the economy and their overall pay package gets adjusted all the time,"
he says. "If they think theyfre not being treated fairly then go look for a new
job."
Salisbury says, bottom line, whether
people choose to save enough money on their own is what will determine when and
how they can retire.