Recent surveys on the future of employer matches to 401(k) plan participant contributions give some reason to be cautiously optimistic.

One late summer poll by Watson Wyatt reveals that 24% of employers plan to reverse reductions to 401(k) matching contributions in the next six months - a promising jump from a mere 5% in June.

Preliminary results from Securian Financial Group's annual client survey show that although 32% of respondents have experienced or anticipate a reduction or suspension of their match, 9% have instituted one or expect to increase their match.

So what will we really see in 2010? EBA spoke with several retirement experts for their analysis and outlook on the future of matching contributions.

Big vs. little

While Securian's typical client base is in smaller employers (50 to 1,000 employees) with some larger outliers, Rick Ayers, VP of retirement plan services, says whether or not companies have dropped their contributions to their 401(k) plans depends more on the particular industry than business size.

"It's more along the nature of their business than the size of it," says Ayers, noting that while the health care field is looking positive, manufacturing and construction "have had a more difficult experience."

Meanwhile, at Great-West, Senior Vice President Chris Cumming says employer size has a lot to do with it. Cumming deals mostly with plans over $25 million with more than 1,000 employees and has seen only a couple of those employers curtail their match. He attributes access to consulting firms that provide the ability to forecast and budget well as one reason why his larger clients haven't made many changes.

"They've probably tended to be more conservative in setting up [the plan], so that when they got to a cash-crunch period, they weren't so strapped that they then had to do something as draconian as cut the match," says Cumming.

In some ways, it's more about the logistics than saving money for larger employers, he indicates.

"When you're dealing with lots of employees scattered all over the country, changing your benefits is something you really want to think about," says Cumming, "because to reinstate it becomes a bigger ordeal. [You have] to re-communicate it across the country in multiple locations."

Josh Itzoe, a principal with Greenspring Wealth Management, gives other reasons for why his small group clients (with $5 to $50 million plans covering 50 to 1,500 employees) haven't messed with the match. "It can go both ways, but the companies that hire us are more paternalistic about their benefits," he says. "They're privately held, so they don't have to worry about hitting their numbers for a quarter or being punished by the stock market."

Auto-enrollment

There is much talk about boosting automatic enrollment efforts from both Congress and the Obama administration, but how it will affect future employer contribution rates remains to be seen. Historically, the employer match has been useful in incentivizing employees to join voluntary 401(k) programs, notes Jean Young, research analyst with Vanguard Center for Retirement Research. Now, nearly half of the eligible employees that Vanguard works with are in automatic enrollment plans.

"I don't think it will affect the individual savings level," she says. "So the people who are automatically enrolled are going to stick with the automatic enrollment and the savings rates whether the match is there or not."

As the use of auto-enrollment increases, it won't necessarily affect the rate of the employer match, Young predicts. "Employers set their match to be competitive in their industry. I think that that will stay the norm," she says.

Employers are mindful of the cost implications if they increase or reinstate their match and participation rises through automatic enrollment, but these costs are weighed against other benefits of instituting automatic enrollment, depending on the company's objective in offering a retirement program, says Ayers. For example, is the priority to attract and retain employees or to satisfy regulatory discrimination testing requirements?

Cumming believes automatic enrollment is set to take off, but that companies will be smart with their 401(k) contributions when instating it. He points out that currently only 6% of large plan sponsors adopt a dollar-for-dollar match to 6% of pay - but 23% of large employers have done a 50 cent match to 6% of pay. "So you can see something more efficient is a more popular matching number and more fiscally prudent in tough times," says Cumming.

Changing on the return

Companies that have dropped their match now have a "free ticket" to revisit their plan design. Cumming says many have learned to keep contributions discretionary from now on, rather than establishing a written formula.

Bill Losey, principle with Bill Losey Retirement Solutions, says "a fair amount of companies" are looking to switch from a salary-based match to a flexible one based on company performance. "That probably is going to become the wave of the future," he says, "because I think that would be more palatable to the employees versus thinking that that money is always going to be there."

A smart move when reinstating, insists Cumming, would be for employers to do a 25% match to 6% of pay, rather than a more typical dollar-for-dollar to 3%. "If you go to 3% dollar-for-dollar [employees] will just stop" contributing, he says. "They could have afforded to go higher, some may go higher, but with no match you've really lost that carrot."

On the other hand, Itzoe is meeting with clients who are interested in instituting annual automatic deferral increases as the economy recovers by starting out at 3% the first year and growing to 6%.

"I think if you require participants to make the decision to defer all 6% [at once], you're going to have a lower success rate because some participants just aren't going to do it," he says.

Looking back to the last bear market at the beginning of the decade, Vanguard saw about 10% of employers reduce or suspend their match, similar numbers to this time around. "Virtually all of them restored the matches once we were out of the recession and the markets recovered," says Young. "So we would expect to see most all of these companies restore their matches."

The economic crisis has pummeled multiemployer pension plans, only 27% of which are now considered safely funded, according to a survey by the International Foundation of Employee Benefit Plans.

Nearly three-quarters (73%) of multiemployer pension plans report they are less than 80% funded 

In 2008, 75% of survey respondents reported they held a safe status, 14% were endangered or seriously endangered and only 11% reported being in a critical status.

Multiemployer plan sponsors now face tough choices. Under the Pension Protection Act of 2006, plans certified as endangered must create a funding improvement plan. Those certified as critical must create a rehabilitation plan. To provide DB plans temporary funding relief, the Worker, Retiree, and Employer Recovery Act of 2008 (WRERA) provides an alternative option

Details on how many plans are taking advantage of the freeze option and why are contained in IFEBP’s report, Multiemployer Pension Funding Status and the Freeze Decision, available through IFEBP.org’s bookstore.