More 401(k) is on the way
In the wake of the recession, employers are renewing retirement contributions.
There is good news for workers: It appears companies have sufficiently recovered from the recent recession to again begin offering matching funds for 401(k) retirement plans.
While a number of companies, impacted by the financial crisis, had suspended matching funds to employees’ 401(k) plans, the number of workers and employers participating in employment-based retirement plans is on the rise again.
In 2009, Hewitt released its Trends and Experience in 401(k) Plans report, which noted the financial crisis that began in 2008 had a significant impact on some companies, as employer contributions decreased, were suspended, or eliminated.
The survey included more than 300 respondents from companies having 10,000 or more employees. Of the participating employers, 10 percent reported suspending employer matching contributions during 2007 and 2009, while another 10 percent suspended non-matching profit-sharing contributions or employer non-matching contributions.
David Muilenberg, principal and president of Ada-based Discovery Financial, said from 2007-2009, his firm worked with quite a few companies that had stopped or deferred their matching contributions or 401(k) plans due to the financial hardship.
“Many employers stopped their matching contributions or suspended their profit-sharing contributions to save money, just because business earnings were down, profits were down and everybody was scared,” said Muilenberg.
As an independent firm, Discovery Financial provides a variety of products and services, including financial planning, investment management, retirement strategies, group health plans, 401(k) and pension plans and business succession planning.
Although some companies suspended or eliminated 401(k) plans for employees, the Investment Company Institute noted out of more than 22 million defined contribution plan participants, only 3.7 percent of individuals stopped contributing to their accounts in 2008, despite the total asset value of 401(k) plans in the United States dropping from $3 trillion in 2007 to $2.2 trillion in 2008.
Jim Mack, chief operating officer at AccessPoint Human Resources, said his organization didn’t see much of a change during the recession with its clientele, primarily due to the size of the companies.
“From an AccessPoint standpoint, we work with companies primarily with less than 100 employees, and what we have found was that during the recession, companies were cutting back the employees they had, but they were concerned about retaining the employees still there,” said Mack. “They pretty well kept the 401(k) plans and matching plans in place, because they were concerned about making sure they kept those core employees.”
A professional employer organization, AccessPoint provides outsourced human resource to its clients, including payroll, employee benefits, 401(k) plans, safety and workers compensation, and unemployment.
As the economy stabilized and the total asset value of U.S. 401(k) plans hit $4.4 trillion as of June 30, according to ICI, Muilenberg said every one of the reduced or eliminated employer contribution plans during the recession has met or exceeded that level.
“We probably have between five and eight plans right now that we are going to be implementing in the first quarter of ’15 from employers who have never had one before, who are looking to add because their employees are requesting it,” said Muilenberg. “I think employees are a big part of driving 401(k) plans if a company doesn’t have them.”
With 64.2 million workers enrolled in employment-based retirement plans during 2013 — up from 61.6 million in 2012 — it is the largest percentage of employee participation since 2007, according to the Employee Benefits Research Institute.
During 2013 in Michigan, 46.9 percent of 3.7 million private-sector wage and salary workers participated in an employment-based retirement plan, while 71.9 percent of 500,000 public-sector workers participated.
“I think they are extremely important for the competitive edge of a company and I think people expect if they are going to work for a company, they have a 401(k) plan because it is one of the last tax shelters left people can actually defer money to and save on their taxes,” said Muilenberg. “I think it is an excellent hiring tool and I think it is very important that employers and business owners offer up these plans because it does help.”
Aon Hewitt’s 2013 report on defined contribution plans revealed that for 75 percent of responding employers, it is the primary source of retirement income for employees, and despite the risk shifting toward the individual, plan sponsors are empowering workers to save. Representing a pool of more than 400 plan sponsors and 10 million workers, the survey noted roughly 98 percent of participating employers provide some form of employer contribution to a plan.
“Most employers take on that maternal or paternalistic role; they feel a little bit of responsibility to have their employees save for retirement, so therefore they have the match and feel it is important they are contributing to helping people save,” said Muilenberg. “The trends I am seeing right now are more focused on employees and their retirement, not so much trends in what is offered or what type of plans but more focused on the employers wanting to know the retirement readiness of their employees.”
Offering a defined contribution or 401(k) plan is tremendously important when taking the landscape of Social Security into account, according to Mack. A majority of AccessPoint clients offer a 401(k) plan, and Mack said there is roughly a 35 percent participation rate from the employees.
“Employees need to take the initiative on their own to start saving for retirement, and 401(k) is one of the best ways to do that — and especially if an employer has a matching plan,” said Mack.