Companies Whack 401(k) Benefit Programs

Companies are killing 401(k) matching programs to cut expenses. The Pension Rights Center in Washington, D.C. lists 264 large companies that have announced a change in their 401(k) matching policies since June 2008. You can find the list at www.pensionrights.org. We contacted 30 of the highest-profile companies on the list and found that 28 had discontinued their 401(k) matching. The other two — Starbucks and Pep Boys — said they will match only if they hit their profitability targets for 2009.

Interestingly, one of the companies we looked into was Whole Foods Market. Its employees were given a choice of health care benefits or 401(k). They chose health care insurance.

Health Care Reform Hindering Retirement Benefits Programs?

U.S. legislators are floating proposals to require employers to provide health care benefits to employees or pay a penalty. One proposal in the U.S. House of Representatives would penalize employers if they do not provide employee health insurance. Companies with payrolls of more than $400,000 would be forced to pay a penalty of 8 percent of their total annual payroll. Employers with payrolls ranging from $250,000 to $400,000 would pay a lesser penalty, and firms with payrolls under $250,000 would be exempt.

Where’s the money going to come from? You have to wonder if companies might just kill other benefit programs — such as the 401(k) match — to pay for any new health care mandates.

To be sure, many companies are struggling just to keep their doors open.

Contingent Matching in Our Future?

Maybe Starbucks and Pep Boys are on the forefront of what’s to come — retirement plan matching programs contingent on company profitability. A type of incentive compensation?

Maybe it’d entice employees to work harder and smarter — to think more like owners — while giving businesses a built-in cost reduction mechanism during downturns.

Uncertain Future

It’s impossible to know what the future holds. Employers have little choice but to be very conservative. Cash is the lifeblood of the business, and managers must conserve cash at every turn. Thank goodness that employers have the ability to cut expensive programs when they feel they must. But what if the government mandates health insurance? Will they also mandate retirement programs? Could these mandates hinder a company’s ability to survive tough times?

Nancy Hwa, spokeswoman for the Pension Rights Center, says the companies have the discretion to cut these programs. “Unfortunately, we’ve seen this trend over the past 20 years, where companies are increasingly getting out of contributing to their employees’ long-term well-being plan, whether it’s a pension or retirement income or health benefits,” said Hwa.

The Rich Get Richer

U.S. employees are immensely mobile. They can change employers at will, and they do. They choose where to work based on important things such as pay and benefits. When an organization cuts pay and benefits, it’s a given that some employees will depart for greener pastures.

Where are the greener pastures? Companies making money and able to pay full benefits such as a 401(k) matching program.

So, in a way, when a company cuts benefits, it may start to lose the war for top talent. Which begs the question, how is an already marginally profitable company going to make a comeback with employees who are not the cream of the crop? Does a cut in benefits spell the beginning of the end?

Only One Way Out

As the owner of a business during a downturn, you have tough calls to make. Run out of cash and it’s game over. Fail to retain top talent and it may also be game over.

This dilemma leaves us with only one real option — find ways to raise revenue and profit. And so, even if it means running some losses in the near term or raising additional equity from investors, we have to invest in improving our business.

Are you dealing with these issues? Have you? If so, what are you doing? What have you done? Let us and your peers know by writing to us at editor@thebusinessowner.com. We would like to share with others how you handled the situation.