Elimination of Matching Contribution

Last Resort or Latest Trend?

It seems that you can’t read an industry publication these days without seeing that another plan is eliminating a matching contribution. When sponsors first decided to eliminate matching contributions, they likely did so with hesitancy and trepidation. As these cuts have become more common and more widely reported they are likely also becoming more acceptable in the eyes of plan sponsors. Is the media attention on these turning the demise of matching contributions into a self-fulfilling prophecy? Let’s hope not! 

The case for matching contributions

This industry has been successful at delivering the message that matching contributions are “free money.” Participants get it. In fact, the message has been so strong, that plans with employer contributions have significantly higher participation rates than those without. According to Diversified Investment Advisors’ Retirement Plan Trends in Today’s Healthcare Market 2008 survey, plans with employer contributions had an average participation rate of 75%, compared with a drastically lower 45% for plans with no employer contributions.

The future of matching contributions

A recent Mercer study, leading through Unprecedented Times, had some good news; 83% of respondents do not expect their company to reduce the level of employer contributions. Plan sponsors should understand that the elimination of matching contributions is not as common as it might seem.

Helping plan sponsors

If your client is considering this option, help them navigate through difficult decisions by offering alternatives such as:

• Are there other costs that can be cut? Consider more electronic communications rather than print. If the sponsor offers multiple plans, consolidate vendors to achieve economies.

• Can the match be restructured? Instead of matching 100% of the first 3% of employee deferral, consider a 50% match on the first 6% of contribution or even 25% on the first 8%. This may even have the added benefit of increasing participant savings rates while cutting costs.

• If employer contributions must be cut, make it as positive as it can be. Have participants been asking for additional investment funds or services? Now might be the time to add them.

• Don’t give employee communications short-shrift. Communicate openly and honestly. Let participants know why this step must be taken and reinforce the importance of saving and investing for retirement. In this market, participants are aware of the need to save—take advantage of this by targeting and personalizing communications that make it easy for participants to take appropriate action to improve their retirement funding.

You have a unique opportunity to help your clients and their participants in today’s market. It’s your chance to engage in discussions that will have a lasting impact on your clients’ retirement plans. Investing the time now may yield rewards in client loyalty in the future.