It’s been three decades since the 401(k) arrived on the retirement saving scene. And to celebrate the tax-deferred account’s milestone many U.S. companies that eliminated their 401(k) matching contributions during the Great Recession are beginning to restore this valuable benefit.
According to the consulting firm Towers Watson during the recent recession almost one in five U.S. companies with at least 1000 workers suspended 401(k) matching contributions. Now many of those companies are reinstating the perk – albeit often at a reduced level. Today the once standard 3% match is considered generous. In addition to offering smaller matches some companies are linking their contributions to corporate profits or requiring employees to reach a particular dollar level in their account before any matching occurs.
With traditional pension plans going the way of the drive-in movie and concerns mounting over the long-term health of Social Security 401(k) accounts are a critical leg to the retirement stool. According to the Employee Benefit Research Institute (EBRI) 79 percent of eligible workers (36 percent of all workers) say they participate in retirement savings plan with their current employer. Furthermore 28 percent of participants report that they have increased the percentage of their salary that they contribute to the plan in the past year and just 4 percent report they decreased the percentage. EBRI also found that workers who currently participate in this type of plan are more than twice as likely as those who do not to report retirement savings and investments of at least $50000 (52 percent vs. 23 percent).
While 401(k) participation levels have certainly increased since the plan’s introduction and held steady even throughout the recent financial crisis the industry can do a better job with education. In fact EBRI found less than half of workers (42 percent) report they and/or their spouse have tried to calculate how much money they will need to save to secure a comfortable retirement. Disappointingly this percentage is lower than the 53 percent recorded in 2000 and the 47 percent in 2008.