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CCH® PENSION — 04/20/10

Survey Finds One In Four Employers Cut Matching Contributions In 2009

from Spencer’s Benefits Reports: Recent economic woes have had a decided impact on the funding of defined contribution plans. According to the 6th annual Retirement Plan Survey, conducted by Grant Thornton, Drinker Biddle & Reath, and Plan Sponsor Advisors, one fourth (26%) of employers have either scaled back their contributions or eliminated the company match altogether in an effort to reduce costs. In addition, some employers are in no hurry to reinstitute previous benefits: among those who have scaled back or eliminated contributions, 53% have not yet decided whether to return to previous levels in 2010 and 33% have no plans to do so.

Plan participants also have changed their contribution patterns in response to the economic downturn. One-third (33%) of plan sponsors indicated that participants decreased their contributions, while 56% say they have seen increases in loan requests and 34% of plans have had increased hardship withdrawals. However, only 7% of plan sponsors reported large increases in loan requests, and just 3% of plan sponsors reported significant increases in hardship withdrawals.

“The recent economic challenges have certainly affected the funding—including employer and employee dollars—of defined contribution plans. While most are taking a wait-and-see approach in 2010 with respect to employer contributions, the fact that one fourth of employers have taken significant measures to adjust contribution plans is quite telling of the times,” said Debbie Smith, an employee benefits practice partner with Grant Thornton.

“Our survey shows some interesting changes in contribution patterns among plan participants. Yet even in times such as these, it seems that the majority are staying the course and leaving their retirement accounts alone,” said Dave Wolfe, partner in the employee benefits and executive compensation practice at Drinker Biddle & Reath.

The continued financial crisis has led many companies to make tough decisions regarding salaries, bonuses, and workforce reduction. Forty-three percent of respondents said they had experienced a reduction in force, and 16% said they had instituted a hiring freeze. However, approximately 34% of respondents experienced no change in the level of their workforce. Forty-nine percent of respondents instituted salary freezes, and 17% capped the rate of salary increases. In addition, 19% said the rates of bonuses were reduced, and 11% froze bonuses. Nearly one-third (31%) of respondents indicated that they did not see a change in compensation practices during 2009.

For more information, visit http://www.grantthornton.com.

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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