More companies may end 401(k) match

As the economic slump deepens, more companies are expected to join General Motors in suspending matches of contributions to their employees' 401(k) retirement accounts.

GM last week became only the latest on a list of well-known companies trying to conserve cash to weather the downturn by halting 401(k) account matches.

Also among them are Goodyear, Frontier Airlines, commercial real estate firm Cushman & Wakefield, broadcast group Entercom and rental car agency Dollar Thrifty Automotive Group.

Employers typically match a portion of workers' contributions as a way of encouraging them to sock away money for their retirement and as an alternative to funding a pension plan.

Some 2% of 248 employers surveyed this month by human-resources firm Watson Wyatt indicated they have cut back on 401(k) matches as a way of coping with the sinking economy. Another 4% said they may join them in coming months.

Those numbers might be even larger were it not for warnings from experts that cutting back on 401(k) contribution matches can be a morale killer.

"It's penalizing the folks who are doing the right thing (by) contributing to their retirement," says Alec Dike, a senior financial counselor for Watson Wyatt. And the suspensions could backfire on companies because "it suggests you are in worse financial straits than you really are."

But some say the 401(k) system — which has been steadily expanding as pension benefits decline and workers become more responsible for providing for their retirement income — was designed to provide just such flexibility to employers when their business is struggling.

The match is easy to junk because it is essentially a form of profit-sharing by a company, says Jack VanDerhei, research director of the Employee Benefit Research Institute, a Washington think tank.

Frontier, for instance, was kicking in 50 cents for every dollar an employee contributed to his 401(k) up to 10% of his pay, but stopped the matches June 1 after filing for a Chapter 11 bankruptcy reorganization.

For some, it's not the first time. GM's suspension of matches to its 401(k) plan last week for 32,000 eligible white-collar employees was the second time this decade that it has yanked its participation.

"I don't think anybody is happy about it, but people are pretty determined," says GM spokesman Tom Wilkinson.

Goodyear, which halted 401(k) matching in 2003, plans to resume starting Jan. 1.

"We're all excited it's coming back," says spokesman Scott Baughman.

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