Companies Can Save Millions of Dollars by Suspending Their 401(k) Match for Just One Year, According to New Hewitt Analysis --- Despite Significant Savings, Hewitt Says Companies Can Take Alternative Steps to Reduce 401(k) Costs without Jeopardizing Employees’ Retirement Savings
LINCOLNSHIRE, Ill.--(BUSINESS WIRE)--An increasing number of U.S. companies are suspending their employer 401(k) match in response to continued cost pressures. While the move is controversial, it is not surprising given today’s economic climate. According to a new analysis by Hewitt Associates, a global human resources consulting and outsourcing company, most companies could save millions of dollars by suspending their 401(k) match for only one year. Despite significant cost savings, Hewitt recommends employers take this step only as a last resort due to the significant impact it has on employees’ ability to save enough for retirement.
Hewitt’s analysis shows companies can save, on average, more than $1,500 per employee each year by suspending their 401(k) match, assuming the average employer match of 50 cents to the dollar up to 6 percent of pay. A typical large U.S. company, for example, can see savings of $25 million a year. The average mid-sized company can save more than $10 million, and the average small company can save nearly $2 million annually.1
However, research has shown that suspending the company match negatively impacts employee participation and contribution rates. Once the match is suspended, employees may reduce their own 401(k) contributions or even stop contributing to their plan entirely. As a result, employees’ retirement savings shrink by thousands of dollars due to that one-year suspension. For example, a younger worker earning $50,000 a year who contributes 6 percent of his/her salary will have $16,000 less for retirement than what they would have had if their employer hadn’t suspended their match for one year. That number jumps to $48,000 if the employee stops contributing during that year as well.
Many workers who stop contributing to their 401(k) when their company suspends their match don’t immediately resume contributing once their employer reinstates it. While they may eventually start saving in their 401(k) again, Hewitt finds even a hiatus in savings of just a few years can still deplete retirement savings by hundreds of thousands of dollars. For example, a younger worker earning $50,000 a year who stops contributing 6 percent of his/her salary for five years can have up to $150,000 less for retirement.
