Most companies restore 401(k) contributions

— -- Most employers that cut back on matching 401(k) contributions during the recession are now reinstating the match.

Of 260 companies that discontinued or reduced their 401(k) matching contributions in the downturn, 75% have now restored them, says consultant Towers Watson. Most companies, 74%, reinstated at the previous level, while 23% restored at a lower level and 3% actually boosted their match.

A company match is key in getting employees to participate in retirement plans because it is a no-cost way to add to a worker's nest egg, Towers Watson says. The most common employer 401(k) match is 50 cents for every $1 contributed, up to 6% of worker's pay, Towers Watson says. A $1-for-$1 match up to 3% also is common.

Yet nearly 30% of plan participants are not contributing enough to get the full company match, says Aon Hewitt. Employees who don't contribute enough to receive the full company match are "leaving free money on the table," says Gerri Walsh, vice president of investor education at the Financial Industry Regulatory Authority.

Reasons workers aren't taking full advantage of the 401(k) match:

•Inertia. Although automatic enrollment boosts plan participation, it generally puts workers into a conservative default rate that doesn't max out the match. After workers sign up, many never bother to increase their 401(k) contribution, says Catherine Collinson, president of the Transamerica Center for Retirement Studies.

•Hardship. In the first nine months of the year, hardship withdrawals from 401(k) plans rose 8% from a year earlier, says Bank of America Merrill Lynch. The primary reason for hardship withdrawals is eviction and foreclosure, and then education and medical bills, says Aon Hewitt.

Not only do hardship withdrawals result in penalties and taxes, but workers can't contribute to their 401(k) plan for six months after the withdrawal, says Pamela Hess, director of retirement research at Aon Hewitt.

•Finances. Some workers, especially younger ones, don't think they can afford to contribute up to the full match. They tend to be weighed down by student loans, credit card bills and auto loans and may not be earning as much as they had hoped when they graduated, says Trisha Brambley, president of Retirement Playbook.

There are some things that can help. Companies are starting to offer automatic step-ups in which employee 401(k) contribution rates gradually increase until they reach the threshold for the maximum company match, Brambley says. And legislation has been introduced in Congress that would allow plan participants to immediately continue to make contributions after a hardship withdrawal and also get the company match.