One of the largest outsourcing and consulting company over the course of the last 70 years has made some significant observations recently:
Companies are beginning to contribute to worker’s 401K plans once again and more are expected to do so by year-end. I couldn’t help but wonder, is it because so many in the workforce are out of work that these companies can now afford to do this? Sorry, but with unemployment at a record high in this country, I couldn’t resist that commentary observation from my little corner of the world.
Anyway, FedEx Corp. is now reversing one of the worst trends of the recession and starting to restore the matching fund contributions to its employees’ 401(k) plans. To understand the effects of this ruling, you have to understand a bit about 401(k) plans themselves.
According to the WorldNetWeb, the definition of the 401(k) plan is as follows:
“S: (n) 401-k plan, 401-k (a retirement savings plan that is funded by employee contributions and (often) matching contributions from the employer; contributions are made from your salary before taxes and the funds grow tax-free until they are withdrawn, at which point they can be converted into an IRA; funds can be transferred if you change employers and you can (to some extent) manage the investments yourself)”
FedEx is not the only company to restore the employer-matching contributions, a small hospital in Memphis recently did the same thing and is now matching employee contributions.
With close to 70 percent of Americans relying upon 401(k) retirement plans these days and only 7 percent expected to collect a pension, this would appear to be really good news according to the Employee Benefit Research Institute out of Washington. You can visit them on the Web here.
An example of the impact of employer matching contributions would be as follows:
An employee who makes a salary of $50,000 per year opts to defer 6% of their salary for the 401(k) investment, totaling a $3,000 401(k) investment. If the company matches half of the investment it would be an additional $1,500 per year. The 401(k) grows at a substantially higher and faster rate with the employer matching contributions, encouraging participation in the plans.
However, once the recession hit and the company profits began to tank, many companies looked for ways to cut costs and employer matching on the 401(k) plans was one of the first things to fall by the wayside. About 10 percent of the nation’s largest companies cut their matches in late 2008 and early 2009 according to the Hewitt Associates.
So, as companies restore the 401(k) match, what message is it sending to us?
Are we beginning to rebound? One can only hope.