Companies Cut Employee Retirement Plans

If it isn't bad enough that Americans have seen the value of their 401(k)s plunge this year, now some companies are abandoning their 401(k) matching contributions to save cash.

Wednesday, FedEx became the latest company to announce such a cutback. Workers there are taking a 5 percent pay cut (top managers are seeing a 7.5 percent to 20 percent pay cut), with no pay raises next year. FedEx is also dropping its 401(k) match contributions for at least a year, starting in February.

The move follows similar action at Motorola, Ford, General Motors and others.

Jacob, a 31-year-old compliance manager with FedEx, is upset with the changes, saying the 401(k) match was a good benefit that attracted him to the company.

Each pay period, he was putting away 5 percent of his salary in a 401(k) and getting a dollar-for-dollar match from FedEx.

"That was one of the reasons that I stuck around with the company," said Jacob, who asked that his last name be withheld. "That's free money right there that I couldn't match at other companies. They're cutting my pay, so I can't save money in my own savings account. Now they're cutting my 401(k), which is my main retirement plan."

The losses between the pay cut and 401(k) are more than $10,000 a year for Jacob.

"It just hurts," he said. "I've put in a lot of hard hours to get to where I am with this company right now. I put off a lot of things in my personal life. My thing was: I work hard, it's going to pay off. What I'm making now, after all these cuts, is like what I was making three years ago. So, basically, the last three years of putting off family, vacations and friends has just been wiped away."

Jacob said he is happy to still have his job but is also going to start to look for other work with better benefits.

"I plan on working until I'm 80 now, I guess," he added. "I try actually not to think too much about it."

Stephen P. Utkus, director of Vanguard's Center for Retirement Research, said that 5 percent of companies with Vanguard either reduced or eliminated employer contributions during the past economic downturn, from 2000 to 2002.

Deeper Cuts Than Last Time

"This wasn't solely a change in the match; it could also come in the form of lower [or zero] annual profit-sharing contributions," Utkus said in an e-mail. "Most, if not all, subsequently restored the contributions as the economy improved."

Vanguard runs about 1,800 plans, representing 3 million participants. The company ran about 1,300 back in 2002.

And it looks like this recession could bring deeper cuts.

Business consulting firm Watson Wyatt surveyed 117 companies and found that 3 percent have already reduced their contributions and 7 percent plan to in the next 12 months.

Robyn Credico, who oversees defined contribution consulting for the firm, said that in the past, most of the 401(k) cuts were restored later by companies when the economy recovered. She said companies are making the change to save jobs.

Ultimately, she doesn't think it will reduce the amount of money people contribute to their retirement accounts.

"Typically, people are passive in their behavior," she said. "If you're already contributing to your 401(k) … you probably aren't going to do anything."

Robert Christensen, a partner with the labor law firm Fisher & Phillips who advises companies as they set up their retirement plans, said, "It's obviously a sign of the times. Hopefully, it's just a short-term cure."

Christensen said that some companies offer a match but, because of the way their plans are set up, are free to revoke it at any point.

Other plans require a mandatory company match. Such requirements are spelled out in the summary plan descriptions. Christensen said a quick way to check is to log on to the company's 401(k) provider and see if the matching contributions have already been made. If a company has already made contributions, they can't be taken away.

That still doesn't make Janet, a 26-year-old employee with a large company that recently announced 401(k) cutbacks, any happier. Her company will eliminate its match in February.

"It's disappointing because we expected better," said Janet, declining to name her employer and asking that her last name not be used.

Nothing But 'Empty Words'

The 401(k) was, to her, a "promise to keep me motivated and working at my job." Now, she sees that promise as "empty words."

"I have to remind myself: The company isn't there to help me. I've got to think of myself first," she said. "I need to think of myself first. The company isn't going to think about how to help me retire or how to increase my wealth."