Friday, December 19, 2008

Employers reduce 401K matches: even defined contribution programs are in some peril

Many employers are cutting back on their 401K matches during this latest recession, according to an ABC News story by Scott Mayerowitz, ABC News Business Unit. The title is “Companies Cut Employee Retirement Plans: In This Recession, Some Companies Eliminate Their 401(k) Matches”, the link is here.

Employers have stopped or terminated defined benefit pension plans and replaced them with 401K plans with matches. Now, many of them are eliminating the matches to save money, at a time when demographers say that people need to save 18% (including 401K matches) of their income in order to be able to retire reasonably, including social security.

Some of the news has come from the Vanguard Center for Retirement Research. While I could not find the latest item on 401K matches there, I did find a PDF testimony by Managing Director R. Gregory Brown submitted Oct. 21, 2008, submitted to the House Education and Labor Committee, “The Impact of the Financial Crisis on Workers’ Retirement Security,” here, which makes the point that defined contribution programs have become a cornerstone of American retirement security, and now even these are threatened.

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