Companies Cut Employee Retirement Plans
In this recession, some companies eliminate their 401(k) matches.
Dec. 19, 2008— -- 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.
