Sacred Cow Still Mooing
December 17, 2001
While the poor economy has diminished companies' profitability, undoubtedly forcing many to reduce their rate of matching contributions, the matching contribution benefit is a bit of a sacred cow when it comes to employee benefits, Brambley said. Used as an incentive to increase and maintain plan participation, employers would be ill advised to eliminate their matching plans all together, she said.
Plus, most private companies' matching contribution and profit sharing plans are set up on a discretionary basis and are not tied to any one formula, Wray said. Even if a company has an off year, it will often try to offer its employees some sort of match, even if it is less than the year before, he said.
Additionally, the cost of providing matching contribution benefits are minimal compared to other retirement benefits, so eliminating or drastically slashing them often does more harm than good, Brambley said. "When you look under the hood there's no reason to do it," she said. "It's cheap and you get a lot of mileage in terms of percentage of payroll."
For instance, the cost of a defined benefits programs typically amounts to between 5% to 8% of payroll while a fixed or profit sharing matching contribution plan runs about .5% to 1% of payroll, she said.
Still many companies are searching for benefits to cut and many are considering reducing their matching contribution rates, said Dan Devine, a spokesman with the Employee Benefit Research Institute in Washington D.C. "It seems to me a lot of companies are asking what to do," he said. "I haven't heard of firms bailing on their 401(k) plans, but there has been an awful lot of debate."