Economy > Jobs > Pension, Retirement, 401(k)
The New Orleans Times-Picayune
16 September 2010
Is Catching Up With Me
MARCH 11, 2015
my retirement account
Companies scale back
on matching 401(k)
contributions an end-of-year matching system
PBS 15 February 2014
Companies scale back on matching 401(k)
contributions an end-of-year matching system
PBS Newshour 15 February 2014
What are the implications of these changes
on the average American's retirement?
Hari Sreenivasan speaks with Lauren Young at
about current 401(k) tactics and trends
among different industries
the 403(b) and the 457 -
and invest for retirement
401(k) retirement accounts
company pensions UK
pensionable age UK
pension UK / USA
public sector pensions UK
British pension system UK
pension fund UK
The Denver Post
18 August 2011
In Need of Cash,
More Companies Cut 401(k) Match
December 21, 2008
The New York Times
By MARY WILLIAMS WALSH
and TARA SIEGEL BERNARD
Companies eager to conserve cash are trimming their contributions to their
workers’ 401(k) retirement plans, putting a new strain on America’s tattered
safety net at the very moment when many workers are watching their accounts
plummet along with the stock market.
When the FedEx Corporation slimmed down its pension plan last year, it softened
the blow by offering workers enriched 401(k) contributions to make up for the
pension benefits some would lose. But last week, with Americans sending fewer
parcels and FedEx’s revenue growth at a standstill, the company said it would
suspend all of its contributions for at least a year.
“We will have to work more years and retire with less money,” said Lee Higham, a
44-year-old senior aircraft mechanic at FedEx, who has worked there for 20
years. “That’s what we are up against now.”
FedEx is not the only one. Eastman Kodak, Motorola, General Motors and Resorts
International are among the companies that have cut matching contributions to
their plans since September, when the credit markets froze and companies began
looking urgently for cash. More companies are expected to suspend their matching
contributions in 2009, according to Watson Wyatt, a benefits consulting firm.
For workers, the loss of a matching contribution heightens the pain of a
retirement account balance shriveling away because of the plunging stocks
“We are taking a beating,” said another FedEx mechanic, Rafael Garcia. “In a
year, I lost $60,000 of my 401(k). You can’t make that up.”
To many retirement policy specialists, the lost contributions are one more sign
of America’s failure as a society to face up to the graying of the population
and the profound economic forces it will unleash.
Traditional pensions are disappearing, and Washington has yet to ensure that
Social Security will remain solvent as baby boomers retire and more workers are
needed to support each retiree.
The company cutbacks may mean that some employees put less money into their
retirement accounts. Even if they do not, the cuts, while temporary, will have a
permanent effect by costing many workers years of future compounding on the
missed contributions. No one knows how long credit will remain scarce for
companies, or whether companies will start making their matching contributions
again when credit loosens and business improves.
“We have had a 30-year experiment with requiring workers to be more responsible
for saving and investing for their retirement,” said Teresa Ghilarducci, a
professor of economics at the New School. “It has been a grand experiment, and
it has failed.”
In the typical 401(k) plan, the employer’s matching contribution is more than
just money for retirement. It also motivates employees to set aside more of
their own money for old age. The more that workers save in a 401(k) plan,
generally, the more “free money” they can get from their employers under the
Retirement policy specialists said they did not expect employees to react
immediately to the loss of this incentive by stopping their own contributions.
Study after study has shown that employees procrastinate when it comes to
retirement-plan chores, and in this case the inertia may work, unwittingly, in
Americans, however, are facing extreme household financial pressure.
President-elect Obama has said that he would support allowing withdrawals from
retirement plans without penalties, which would provide short-term relief but
would further undercut American’s long-term savings.
Benefits specialists said that if matching contributions continued to dwindle,
fewer newly hired workers could be expected to join 401(k) plans. And employees
might eventually slow or stop their contributions if the recession drags on and
their own cash runs short.
“The problem is, we are heading into this serious recession, and we don’t know
how long it will go on for,” said Alicia Munnell, director of the Center for
Retirement Research at Boston College. “The bottom line is, people will have
less money in their 401(k) plans, not just because the financial crisis has
decimated their assets, but also because they will not have the employer match
for some time.”
Currently, most companies that offer 401(k) plans do provide some sort of
matching contributions, according to David Wray, president of the Profit
Sharing/401(k) Council of America, an association of employers that provide such
The most typical arrangement is for employers to match 50 cents of every dollar
their employees set aside in their retirement accounts, up to 6 percent of pay.
Sometimes the match is more, sometimes less, and some employers vary it
depending on profitability. Over all, the employer’s cost usually works out to
about 3 percent of payroll.
The latest 401(k) cutbacks underscore workers’ vulnerability in an age when
companies have been replacing defined-benefit pension plans with the newer
401(k) design. Modern 401(k) plans give workers the power to opt in and out and
require them to invest their own money, bearing market risk on their own. That
may be appealing when the markets are rising, but it can be terrifying when they
fall, as they have recently.
An employer’s contributions to a traditional pension plan cannot be switched on
and off at will. Federal rules set a firm contribution schedule, with deadlines
and penalties for companies that fall behind. Employers also get significant tax
and accounting benefits from operating a traditional pension plan, so they tend
to think long and hard before freezing such a plan to save money when the
In a 401(k) plan, by contrast, the employer has much greater freedom to stop
making matching contributions when times are tough. The contributions are
normally measured as a percentage of payroll, and the savings from any cuts are
realized immediately. That greatly simplifies planning and making changes.
“Every percent you cut is a percent of payroll,” Ms. Munnell said. “It comes
down to the choice of laying people off, or cutting back on some fringe
Many of the latest 401(k) cutbacks are turning up in industries with obvious
financial problems, like the auto industry, health care and newspaper
publishing. Industries that depend on free-spending consumers, like resorts and
casinos, are also seeing cuts. Often when one company in an industry cuts its
benefits others will follow, to keep their labor costs competitive.
General Motors and Ford Motor have both suspended their matching contributions
to their salaried employees’ 401(k) accounts, although their pension plans for
unionized workers are unchanged.
Motorola, struggling to stay competitive, stopped contributions to its 401(k)
plan this month and froze its pension plan as well.
Other recent cuts have occurred at Resorts International Holdings, Vail Resorts
and Station Casinos.
In addition to stopping their 401(k) matching contributions, companies have been
freezing salaries this fall, shifting more of the cost of health care to their
workers, and laying people off.
“These are really hard times and people are losing their jobs, and in some ways,
a suspension of a 401(k) match, while bad, is probably one of the lesser evils
out there,” Ms. Munnell said.
In announcing the suspension of the contributions last week, FedEx made clear
that its workers in the sorting centers would not be the only ones feeling the
pinch. Pay to senior executives is to be cut by 7.5 percent to 10 percent, and
the chief executive, Frederick W. Smith, said he would take a 20 percent pay
cut. The cutbacks are projected to save $200 million in the remainder of the
2009 fiscal year and $600 million in the 2010 fiscal year.
In Need of Cash, More
Companies Cut 401(k) Match,
G.M.’s Pension Fund Stays Afloat,
Against the Odds
November 25, 2008
The New York Times
By MARY WILLIAMS WALSH
When General Motors left Washington empty-handed last week,
among the lingering questions was whether its huge pension fund could topple and
crush the government’s pension insurance program.
When any pension fund fails, usually as part of a bankruptcy, the government
takes over its assets as well as its payments to retirees. In G.M.’s case, its
plan would dwarf the nation’s pension insurance fund.
Still, G.M. appears to have enough money in the pension fund to pay its more
than 400,000 retirees their benefits for many years — even with the markets
swooning around it. That is largely because of the conservative way G.M. has
managed the fund recently, and it explains why G.M. has not joined the long list
of companies pressing Congress for pension relief.
But this glimmer of hope in a bleak auto landscape could change drastically,
particularly if G.M. struggles along for a few more years, only to go bankrupt.
The company’s blue-collar work force is still building up new benefits with
every additional hour worked, and the pension fund will have to grow smartly to
keep up with those costs.
If G.M. continues paying people to retire early, the costs will grow even more,
because the plan will have to pay retirees for more years than it budgeted. And
G.M. is not contributing additional money to the plan right now.
Already, G.M. says it will be paying retirees about $7 billion a year for the
next 10 years. The fund’s assets were worth $104 billion at the end of 2007,
more than enough to cover its obligations of $85 billion. Since then, the assets
have declined and the obligations have grown, each by undisclosed amounts. The
company says it does not plan to add any money to the fund for the next three or
Even if G.M. were forced into bankruptcy, the government might insist that it
keep the fund, and cover any shortfalls with its own money.
“We would maintain that it can afford to keep its plan intact,” said Charles E.
F. Millard, director of the Pension Benefit Guaranty Corporation, the federal
agency that takes over failed plans. “Based on past history, we think that
argument has a reasonable chance of success.”
Whatever its ultimate fate, the G.M. fund may illustrate, against the odds, that
it is still possible to offer traditional, defined-benefit pensions even in a
historic bear market.
The other American automakers, Chrysler and the Ford Motor Company, also operate
pension funds. Ford said that its fund, which is about half the size of G.M.’s,
had a small surplus at the end of 2007. Since then, however, it is thought to
have suffered a bigger percentage of losses than G.M.’s fund, because it uses a
different investment strategy.
Little is known about the Chrysler pension fund today because the company
stopped making mandatory pension disclosures when it was taken private in August
Along with pensions, G.M. has promised to provide health care to retirees, but
those medical benefits are not guaranteed by the federal government. The total
cost of these benefits in today’s dollars was estimated at $60 billion at the
end of 2007, and G.M. had set aside only about $16 billion to cover the cost.
That year, G.M. and the United Automobile Workers agreed to let G.M. cap its
health obligations to retirees by creating a separate entity to manage the
retiree health plan, and making a big payment. The automaker has said it will
make the payment in January 2010, and its retiree health obligations will end
then. In the meantime, G.M. has issued securities to cover part of the cost and
is holding them in a subsidiary created for that purpose.
The G.M. pension is viable today because of the company’s response to the
firestorm at the beginning of this decade, said Nancy C. Everett, chief
executive of G.M. Asset Management. The unit manages the company’s domestic and
foreign pension funds, as well as other big pools of company money.
In the two years after the tech crash of 2000, most American pension funds
suffered their worst squeeze ever. Although the stock market swings are even
more severe now, pension funds have been buffered somewhat by relief provisions
written into the pension law signed in 2006.
At the time of the tech crash, most pension funds had invested heavily in
stocks, and stocks lost billions of dollars in value. At the same time, interest
rates fell to unusually low levels, causing a painful mismatch, because low
rates make retirees’ benefits more expensive for pension funds to pay. G.M.’s
pension fund finished 2002 with a shortfall of almost $20 billion, by far the
biggest of any American company.
“That was the genesis of General Motors thinking differently about how to manage
the fund,” said Ms. Everett, who was running the Virginia state employees’
pension fund at the time. She joined G.M. in 2005.
Until then, most pension officials thought stocks were their best choice,
because stocks were expected to generate more over the long run than bonds. And
pension funds were thought to have a long time horizon.
Stocks have also been a favorite pension investment because of a much-criticized
accounting rule that rewards the corporate bottom line when pension managers
invest more aggressively.
The big mismatch of 2002 showed pension officials that stocks could produce more
volatility than a mature pension fund like G.M.’s could bear. The company could
not wait for stock prices to come back up eventually, because it had 400,000
retirees waiting to be paid about $7 billion every year.
With that in mind, G.M. sold more than $14 billion of bonds in 2003 and put the
proceeds into its pension fund, making up for the preceding years’ losses. It
also put in the proceeds of the sale of its Hughes Electronics subsidiary, for a
total contribution of more than $18 billion. That was far more than the minimum
required that year.
The big contributions got rid of the fund’s shortfall. (They also gave G.M.’s
bottom line a lift, thanks to the accounting rule.)
Then, over several years, G.M. overhauled its investment portfolio, replacing
billions of dollars worth of stocks with bonds, and adding derivatives to make
the duration of the bonds better match the schedule of payments to retirees.
Bond prices can swing too, but G.M. plans to hold the bonds for their interest,
not sell them. Ms. Everett said the company believed the interest payments would
be more than enough to produce the $7 billion owed to retirees every year.
Currently, 26 percent of G.M.’s pension fund is invested in stocks — well below
the typical pension fund’s allocation. David Zion, an analyst at Credit Suisse
who tracks corporate pension funds closely, estimates that G.M.’s pension assets
have declined by about 15 percent so far this year, compared with a 24 percent
decline for the typical pension fund at America’s 500 largest companies. It will
be several more months before the size of the losses is known for sure, because
companies disclose precise pension numbers just once a year.
When asked why G.M. did not eliminate stocks from its pension fund completely,
Ms. Everett cited the controversial accounting rule.
“There’s two sides to this issue,” she said. “One is making sure your pension
fund is adequately funded, and the other is that pension income does come into
play when you’re looking at the company’s income statement.” No company is eager
to eliminate pension income if competitors still have theirs.
The Financial Accounting Standards Board has been working on revisions to keep
pension activity from affecting the corporate bottom line, but it is not
G.M. has a free pass on the funding rules for the next few years. It holds a
so-called credit balance — a running tally of the contributions made in past
years that were larger than the law required. In 2006, G.M.’s credit balance was
worth $44 billion. The company is using that balance to offset contributions it
would otherwise have to make. Over time, the size of the credit balance will
Ms. Everett said modeling exercises showed that a 26 percent allocation to
equities was the likeliest way to produce adequate investment returns while also
preserving the pension fund’s surplus. She said managing the surplus was her top
priority. If G.M. had to make a pension contribution, it would not have the cash
on hand to do it. The company has said it will run out of cash early next year.
Meanwhile, the cost of restructuring the company could put a heavy burden on the
pension fund. G.M.’s contract with the U.A.W. offers special benefits to workers
whose plants are shut down or who are forced to retire early. Invoking these
special benefits could make the plan’s obligations soar.
G.M.’s Pension Fund
Stays Afloat, Against the Odds,
may end 401(k) match
28 October 2008
By Chris Woodyard
As the economic slump deepens, more companies are expected to
join General Motors in suspending matches of contributions to their employees'
401(k) retirement accounts.
GM last week became only the latest on a list of well-known
companies trying to conserve cash to weather the downturn by halting 401(k)
Also among them are Goodyear, Frontier Airlines, commercial real estate firm
Cushman & Wakefield, broadcast group Entercom and rental car agency Dollar
Thrifty Automotive Group.
Employers typically match a portion of workers' contributions as a way of
encouraging them to sock away money for their retirement and as an alternative
to funding a pension plan.
Some 2% of 248 employers surveyed this month by human-resources firm Watson
Wyatt indicated they have cut back on 401(k) matches as a way of coping with the
sinking economy. Another 4% said they may join them in coming months.
Those numbers might be even larger were it not for warnings from experts that
cutting back on 401(k) contribution matches can be a morale killer.
"It's penalizing the folks who are doing the right thing (by) contributing to
their retirement," says Alec Dike, a senior financial counselor for Watson
Wyatt. And the suspensions could backfire on companies because "it suggests you
are in worse financial straits than you really are."
But some say the 401(k) system — which has been steadily expanding as pension
benefits decline and workers become more responsible for providing for their
retirement income — was designed to provide just such flexibility to employers
when their business is struggling.
The match is easy to junk because it is essentially a form of profit-sharing by
a company, says Jack VanDerhei, research director of the Employee Benefit
Research Institute, a Washington think tank.
Frontier, for instance, was kicking in 50 cents for every dollar an employee
contributed to his 401(k) up to 10% of his pay, but stopped the matches June 1
after filing for a Chapter 11 bankruptcy reorganization.
For some, it's not the first time. GM's suspension of matches to its 401(k) plan
last week for 32,000 eligible white-collar employees was the second time this
decade that it has yanked its participation.
"I don't think anybody is happy about it, but people are pretty determined,"
says GM spokesman Tom Wilkinson.
Goodyear, which halted 401(k) matching in 2003, plans to resume starting Jan. 1.
"We're all excited it's coming back," says spokesman Scott Baughman.
More companies may
end 401(k) match,
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