Retirement plans fall victim to crisis

Bloomberg

refid:11298128 ilişkili resim dosyası

U.S. companies are cutting back matching contributions to employee retirement plans to save cash, and the trend is growing, according to a survey by Spectrem Group.

The survey of 150 U.S. companies found that 34 percent have reduced or eliminated retirement-plan contributions since January 2008. In the next 12 months, 29 percent intend to scale back or eliminate their match, the survey showed on Wednesday.

Spectrem polled retirement plan sponsors nationwide in February, with a margin of error of 8 percentage points. The firms were randomly selected from a larger group representing a range of industries, Spectrem said.

"The economic crisis has taken a significant toll on matching contributions to defined-contribution retirement plans," said George Walper, president of Spectrem Group, a Chicago-based financial consulting firm. The trend "raises questions about the ability of the current generation of working Americans to adequately fund their retirements."

The retirement debate is heating up in Washington, as Congress and the Obama administration consider how to respond to the more than $2 trillion lost in retirement assets since October 2007. At a February hearing, House Education and Labor Committee Chairman George Miller called current 401(k) plans a "high-stakes crap shoot."

A 401(k) plan allows a worker to save for retirement and have the savings invested while deferring income taxes on the saved money and earnings until withdrawal.

Spectrem also found that 20 percent of employees surveyed have decreased the amount they’re saving, with another 5 percent likely to in the next 12 months. That survey sampled 400 retirement plan participants and had a margin of error of 4.9 percentage points. Those findings contrast with earlier reports issued by financial firms.

Employers are using the increased flexibility 401(k)s give them to adjust payments to reduce costs, Walper said in an interview. How much this affects retirement savings depends on how long it lasts, he said.

"This is really the first time in the 401(k) world we’ve seen this dramatic a shift in savings," Walper said. "I don’t believe most Americans think they’re sacrificing their retirement down the road. It’s about today. If it doesn’t change in 2010 or 2011, it’s a really tough tradeoff."

The Investment Company Institute, a Washington-based mutual-fund trade association that includes Fidelity Investments and the Vanguard Group, two large administrators of 401(k) plans, said its data on 22 million retirement accounts indicates 3.7 percent of employees stopped contributions in 2008. A Jan. 28 Fidelity Investments survey showed the average amount saved in 2008 was higher than in 2007.

Intense lobbying

The ICI and other financial-industry lobbying groups are defending 401(k) plans following congressional hearings that highlighted shortfalls in retirement savings. The group was joined by the American Bankers Association and the Securities Industry and Financial Markets Association and four other trade associations at a March 5 "retirement savings summit" to explore ways to strengthen and preserve the system.

"A key strength of the 401(k) system is that employees can continue to build their retirement savings by contributing on a paycheck-to-paycheck basis" even without an employer match, said ICI spokeswoman Rachel McTague. "The company can resume its contributions when its financial situation improves."

At least 148 U.S. employers have stopped or reduced 401(k) matching contributions since June 2008, including General Motors, Eastman Kodak, Motorola, Hewlett-Packard and Xerox, according to the Pension Rights Center, which is pushing for retirement savings alternatives to the 401(k).

"It’s a double-whammy for workers," said Nancy Hwa, spokeswoman for the Washington-based center. "They’re stretched. They need money. Now their employers are pulling back on the match. It illustrates a fundamental weakness of the 401(k) system."

U.S. workers had $15.9 trillion in retirement assets at the end of the third quarter of 2008, down from $16.9 trillion on June 30, according to a February report published by ICI. That included $4.1 trillion in IRAs and $2.7 trillion in 401(k) plans. Mutual funds held $1.9 trillion in 401(k), 403(b) and other kinds of so-called defined-contribution plan assets, according to ICI.

About 55 million private-sector employees have defined-contribution retirement plans, in which workers are responsible for managing their own funds, according to the Center for Retirement Research in Boston.