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CCH® PENSION — 01/06/10

401(k) Plans That Suspended Their Matching Contribution Experienced Declines In Participation And Deferral Rates

from Spencer’s Benefits Reports: The majority of 401(k) plan sponsors continued their matching or nonmatching company contributions despite the economic conditions during 2008 and 2009, according to a survey of plan sponsors conducted by the Profit Sharing/401k Council of America (PSCA) in October 2009. (A companion survey was conducted by the PSCA of 403(b) plan sponsors.)

Of 406 companies that offered a matching contribution on Dec. 31, 2007, 76.8% made no changes in 2008-09, 14.8% suspended the match, 3.7% reduced it, and 4.7% increased it. Of those companies that suspended or reduced their matching contributions, 5.4% already have restored them and 41.3% of companies plan to restore their match within the first quarter of 2010.

Only 6.1% of the smallest companies (those with 1-49 employees) suspended their match, compared to 16.1% of the largest companies (those with 5,000 or more employees). Midsize companies were more likely to reduce their match: 6.5% of companies with 50-199 employees and 6.6% of companies with 200-999 employees did so. More of the largest companies (8.9%) increased their match during the 2008-09 period than did the smaller companies: 3.2% of companies with 50-199 employees; 2.6% of companies with 200-999 employees; and 4.2% of companies with 1,000-4,999 employees increased their match. None of the the smallest companies (1-49 employees) reduced or increased their match.

Of 264 companies that offered a nonmatching contribution on Dec. 31, 2007, 73.2% made no changes in 2008-09, and 26.8% of the companies either suspended or reduced the contribution. Of those companies that suspended or reduced their nonmatching contributions, 5.5% already have restored them and 30.6% are planning to restore them within the first quarter of 2010.

More of the largest companies (5,000 or more employees) suspended or reduced their nonmatching contribution (34.0%) than did companies with 1,000-4,999 employees (20.6%); 200-999 employees (28.0%); 50-99 employees (27.7%); and companies with 1-49 employees (26.1%).

Companies that suspended their matching contributions experienced a decrease in plan participation to a much greater degree (72.9% of companies) than those that did not change their matching contributions (14.4%). Companies with fewer than 1,000 employees that suspended their match were more likely to experience a decrease in plan participation (82.6% of companies), compared to 75.0% of companies with 1,000-4,999 employees and 60.0% of the largest companies (5,000 or more employees).

Participant deferral rates declined at 56.7% of the companies that suspended their match, compared with a decline in deferral rates at 20.8% of the companies that made no change in their match. Companies with 1,000-4,999 employees that suspended their match were more likely to experience a decrease in participant deferral rates (62.5%) than companies with fewer than 1,000 employees (58.3%) or companies with 5,000 or more employees (50.0%).

A copy of the survey, Impact of Economic Conditions on 401(k) and Profit Sharing Plans, can be found at http://www.psca.org.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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