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At the moment, there aren't expectations for widespread cuts to corporate contributions. Among large corporations, it's likely to rival the 15 or so companies that were documented in the 2001-2003 downturn. Principal Financial Group Inc., which manages 33,000 retirement plans covering nearly 3 million workers, said less than 1 percent of its client companies with 401(k) plans changed course in the previous recession. The Center for Retirement Research at Boston College studied the trend in 2001-2003 and found 15 companies including Prudential Financial Inc., Ford Motor Co., Daimler Chrysler and CMS Energy had suspended their contributions. Most had resumed contributing within two to three years, Munnell said. One company restoring its benefit is Goodyear, which announced in February 2007 that it would freeze its traditional pension plan on Dec. 31 and replace it with a 401(k) beginning Jan. 1, 2009. Management says the move saves $100 million this year and up to $90 million in 2009 and beyond. Wayne Ranick, a spokesman for United Steelworkers Union, which represents workers at Goodyear, said the philosophy for many companies is to shift as much of the cost of health care and retirement to workers and away from the company. "If companies are suspending their 401(k)s, I'm sure its reflective of the economic times," Ranick said. "You're just starting to see the slowdown that's going to take effect." The ability to discontinue contributions in lean times is one of the features of the 401(k) plan that makes it so attractive to employers, said Jack VanDerhei, research director at the Employee Benefits Research Institute.
"Employers want the flexibility of saying if it's a profitable year and I have more money, I will share it with you," he said. "If it's not a profitable year, I might lower the match or in some cases temporarily suspend it all together." The last time companies cut back on their match workers did not pull their own money out of their 401(k) plans in large numbers, said Robyn Credico, director of defined contribution plans for business consultant Watson Wyatt. She doesn't expect many to cut back their own contributions this time. Research has shown that worker participation in a retirement plan is in large part passive and they tend to leave it alone unless pushed by some financial need to change it. Cutting their own participation would make matters worse, said Barrie Christman, a vice president in the Principal Financial's 401(k) business. "All they'd be doing is compounding the problem," she said. "I'd hope people would step up their own contribution, but that could be hard to do in this environment." For millions of workers, the matching contribution is a critical part of their retirement plan. The most common match is 50 cents for each $1 a worker contributes up to 6 percent of the worker's salary. For example, a worker earning $50,000 a year contributing 6 percent, would put $3,000 into the 401(k) account and the company would put in $1,500. The real impact on the worker isn't from the loss of $1,500 but rather the lost opportunity to benefit from the compounding of interest on that money over time
-- which could easily grow to hundreds of thousands for younger workers.
[Associated
Press;
Copyright 2008 The Associated Press. All rights reserved. This
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