401(k) plans take hit from economy

By Naomi Snyder • THE TENNESSEAN • May 18, 2009 Like a lot of other workers, Cory Miller watched his retirement plan tank last fall. Shortly after, his employer also announced it would suspend its own contributions to the plan, a 50-cent match for every $1 he contributed. "I wasn't happy about it,'' said the 24-year-old FedEx driver. "That's money you're losing, and I valued it." It was one of a long list of cost-saving measures announced last December as FedEx responded to declining business, although it has remained profitable. Its cuts included layoffs of salaried employees and reduced work hours for drivers such as Miller. Competitor UPS announced similar measures a few months later, after it reported profits fell 25 percent to $1.38 billion during the fourth quarter of last year. Just like during the last stock market bust earlier this decade, employers are yet again suspending or eliminating their contributions to 401(k) plans to save cash. But this time, more of them are doing it and the trend is crossing multiple industries. Local employers who are doing it include automakers and suppliers such as GM, Tenneco and Visteon; financial institutions such as Regions Financial Corp. and Willis Group Holdings, an insurer with 600 employees in Nashville; and retailers such as Macy's, Belk and Stein Mart. More than 100 companies have announced such plans, according to the Center for Retirement Research at Boston College. Although the moves are expected to be temporary for most employers, they raise questions about the long-term feasibility of retirement plans that depend on steady contributions from employees and employers. "We're hoping to bring it back as soon as we can," said Jim Schmitz, the Nashville-area executive for Regions. He noted that the company has avoided layoffs for several months. "From the response of associates, I think everybody understood it," Schmitz said. "You have different options on how to manage your expenses." Companies' 401(k) cutbacks come when workers already are getting hit across the board by reduced wages, reduced hours, hiring freezes and higher health-care premiums — if they still have a job. Of course, there's a lot else that Miller would like rather than just a 401(k) contribution from his employer. He'd also like a full-time job, which he hasn't been able to nab so far at FedEx. He's guaranteed 17.5 hours right now (at $14 an hour), and sometimes gets to work more hours, he said. Miller is considering a return to school to get an accounting degree in hopes of improving his prospects. He graduated from Middle Tennessee State University in December with a degree in business finance. He worked for FedEx part time throughout his college years. Last fall, he watched his brand-new retirement plan slip from about $1,000 to a couple of hundred dollars when the stock market plummeted. With his youth, Miller will have lots of time to make up any losses. Not everyone is so fortunate. Overall, close to $4 trillion dollars was lost in retirement accounts, including 401(k) programs and pensions, during a one-year period ending in October 2008, according to the Center for Retirement Research. The Wall Street crash and the evaporation of some 401(k) matches have helped fuel questions about the viability of such plans as a way to fund retirements. "When you contribute only when times are good, you get all the losses,'' said Dan Muldoon, a research associate at the Centerfor Retirement Research. "When you keep contributing, you earn something when it starts to swing back up." But many companies have announced that they won't begin matching contributions again until sometime after this year. Pensions dying breed Pensions with guaranteed benefits have almost disappeared for most workers, leaving many employees with only a 401(k) match and their own savings as a way to get ready for retirement. Only 10 percent of the private-sector companies offer a pension, according to the U.S. Department of Labor. But 44 percent of private industries offer something like the 401(k). The government's latest projections are that Social Security will run out of money in 2037, just in time for today's 30-somethings to retire. It's not just employers who are cutting back on 401(k) contributions. In some cases, so are the employees themselves. Analysts and financial planners say more people have trouble finding extra money as they grapple with tighter family budgets or job loss. Mercer, the human resources consulting firm, estimates that employers have seen the overall contribution amount to 401(k) plans fall 6 percent in the first quarter of this year, said Cynthia Zaleta, a principal in the firm's Atlanta office. In past recessions, some companies froze pension plans and never came back when the recession was over, she said. This time, the industry doesn't expect that to happen to the 401(k) accounts. "It is easier to restart a match than unfreeze a pension,'' said Kevin Sullivan, a consulting actuary at Bryan, Pendleton Swats & McAllister, a benefits consulting firm in Brentwood. The 401(k) match has become increasingly important to keeping talented employees on board, Zaleta added. She noted that many companies have kept their 401(k) matches during this recession, even when they made cuts in other areas — for instance, eliminating jobs in an unprofitable unit or reducing work hours. "We're going to come back out of this," Zaleta said. "Are you going to think about those employees you need when we come out of this? You don't want to lose that brain trust. You may not be able to get them back."