Suspend 401 (k) Match: Look Before You Leap

 

Wednesday, Apr 15,2009, 9:38:19 AM   Click:

NEW YORK - (BUSINESS WIRE) - With the United States in the grip of a prolonged recession, many organizations are exploring ways to preserve cash, including reducing or eliminating their contributions to the 401 (k) and d other defined contribution (DC). Although these actions May provide relatively quick and easy to cut expenses, Mercer warns employers to have a good understanding of the implications and potential pitfalls of this approach in its latest update, suspend 401 (k) match to - Look before you act.

The employer survey conducted by Mercer in November 2008 revealed that 17 per cent were "probably" or "very likely" to suspend the contribution of their DC plans. But during the first three months of 2009, more than 80 major employers publicly announced plans to reduce or suspend their contributions. Contribution of the suspensions are particularly common in industries hit hardest by the economic downturn, including the media, automotive, airlines, retail, hospitality and gaming, and to a lesser degree of technology, manufacturing, healthcare and finance.

"May Deploring organizations feel they do not have enough time or resources to consider carefully the impact of reductions in contributions or to evaluate other approaches. But the effort at the front could save much time and Expense aside to deal with unintended consequences, "said Bill McClain, Mercer retirement consultant and author of the update Mercer.


The scarcity of financial capital during the current economic downturn which distinguishes it from other recent downturns. While broad measures such as DC-plan match suspension in May of sense for some employers, others want to be more "surgical" in their efforts. A reduction in pension benefits may have a significant impact on commitment and morale.

"Although the loss of years of contribution the employer will not have a huge impact on an employee of the retirement pension, it could be another progressive loss of a benefit already weakened," said McClain. "To suspend contributions to the loss of an opportunity to buy shares at historically low prices. These consequences must be weighed against the organization of the need to preserve capital."

Companies should not lose sight of longer-term business objectives, Mercer warns. "Many organizations better identify savings that will have a minimal impact on groups of employees who will be most critical to help them move forward once the economy improves," said McClain.

Potential regulatory pitfalls

The rules of a game reduction or suspension may vary widely from plan to plan. Employers to maintain a conception of the IRS "safe harbor are subject to specific rules or restrictions on the suspension or reduction of contributions during the year. Other plans in May offer more flexibility in terms of changes of employer contributions, but these plans have to meet various regulatory requirements. In particular, employers need to understand whether a plan amendment is necessary and if this amendment poses no anti-drop questions.

Plan sponsors must determine whether the language used in the past, communications could be interpreted as a promise to provide inputs. Collectively negotiated with the organizations or other employment agreements in place in May of being unable to make changes at the level of DC contributions.

The reduction or suspension of employer contributions could have significant implications for the non-discrimination requirements, which May be aggravated by changes in compensation practices or participant behavior related to the economic slowdown. To avoid unpleasant surprises and potentially costly restoration, said McClain, employers should consider projecting the impact of the contribution of changes on non-discrimination tests.

"Considerations of communication employed by the employer to suspend contributions to the DC," said McClain. "Participants need to receive sufficient notice to enable them to change their deferral elections if they wish - and" safe harbor specific models of notification. And all changes will be incorporated in the plan of the description and other communications, including online tools and support providers to clients. "


Updating Mercer in April 2009, the suspension of the 401 (k) match: Think before you act, be downloaded from http://select.mercer.com/blurb/148279/article/20096402/ May.

About Mercer

Mercer is a leading global provider of consulting, outsourcing and investment services. Mercer works with clients to solve their most complex benefit and human capital issues, designing and helping manage health, retirement and other benefits. He is a leader in benefit outsourcing. Mercer include investment services and investment advice multi-manager investment management. Mercer 18,000 employees are based in over 40 countries. The company is a wholly owned subsidiary of Marsh & McLennan Companies, Inc., which lists its stock (ticker symbol: MMC) on the New York, Chicago and London stock exchanges. For more information, visit www.mercer.com.

Mercer

Stephanie L. Poe, +1 202 / 331 5210

Stephanie.Poe @ mercer.com

Source: Mercer