2008: End of Company Retirement Plans Begins

By Scot Herrick | Personal Finance

Jan 07

While many look forward to the new year, there is at least one item from 2008 that merits attention. It may be the year that the end of company retirement plan support begins.

It all started with companies eliminating pensions, of course. That part is old news. The new news is that more and more companies are foregoing the “company match” portion of the 401(k) retirement plans used now by most companies.

The reason is earnings. Taking away that typical 3% company match to the 401(k) goes straight to the profit line to help support company earnings.

And some big companies are leading the parade.

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 markets.

“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.”

No you can’t.

The big question is once eliminated — for temporary economic reasons — will the matching funds come back? This happened one other time and most companies restored the employer match — but these are different times. The recession looks like it will last longer and is already more severe than most of the past downturns. That puts significant pressure on companies to preserve cash and reduce losses.

Even if companies restore the employer match, they won’t restore it all the way back to make up for what they missed in your account.

So you are out of that much of your retirement savings. More that you have to make up with your own savings.

Will 2008 be the start of companies eliminating their portion of employee retirement accounts forever?

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About the Author

Scot Herrick is the author of “I’ve Landed My Dream Job–Now What???” and owner of Cube Rules, LLC. Scot has a long history of management and individual contribution in multiple Fortune 100 corporations.