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As businesses review their 2009 budgets to determine how they’ll weather the economic crisis, it’s likely that many will consider for the first time whether to reduce or suspend their match of employees’ contributions to the company’s 401(k) retirement plan.

Several major employers, particularly those in industries hit hardest by the recession, have announced recently that they were suspending or reducing their matches, among them General Motors Corp., Frontier Airlines Holdings Inc. and Davenport-based newspaper publisher Lee Enterprises Inc.

Employer matches on 401(k) plans can represent a significant annual expense for companies. On average, Iowa employers matched 58 percent of employees’ contributions on up to 4.9 percent of annual salaries, according to a 2008 statewide benefits survey conducted by David P. Lind & Associates LLP in Clive.

Benefits experts in Greater Des Moines say small to medium-sized companies are less likely than larger companies to consider cutting their match. Also, many companies’ plans are structured in a way that will allow managers to postpone any decisions until the first quarter of 2009.

Winnebago Industries Inc., which has shed 900 salaried positions since June 1, still provides a match to its remaining employees, but reduced it by 10 percentage points on July 1. The Forest City-based motor home manufacturer now matches up to 40 percent of employee contributions on up to the first 6 percent of employee contributions.

“It’s reviewed on a regular basis by our board of directors,” said Sheila Davis, a company spokeswoman. “We do feel it plays an important role in our benefits package for our employees. We just continue to analyze it based on current economic conditions.”

Dice Holdings Inc., the parent company of Urbandale-based Dice.com, which announced earlier this month it was cutting 10 percent of its work force due to a slowing technology jobs market, said it does not intend to reduce or eliminate its 401(k) match.

No surprise

In a recent national survey of 248 companies conducted by benefits consultant Watson Wyatt Worldwide Inc., 2 percent of the respondents indicated they had already reduced or eliminated their matches, and another 4 percent indicated they expected to do so within the next 12 months.

Those survey results “did not surprise me,” said Dennis Long, vice president for retirement investor services for Principal Financial Group Inc., one of the largest 401(k) plan administrators. “The market conditions we’re seeing are obviously unprecedented. Declining markets test our confidence and our patience. But when I look at that (statistic), my headline would be: 94 percent of sponsors or plans are not changing their match.”

Long noted that 89 percent of the Watson Wyatt survey respondents were companies with 1,000 or more employees. In contrast, about 85 percent of plans that Principal administers across the country are for employers with under 1,000 employees, he said, “and we have had less than 1 percent of clients even inquire about elimination of their match. So our results were substantially different.” Long said he believes most companies will look at reducing other benefits before considering eliminating their 401(k) plan match.

“I think that they are going to look for other ways to get the bang for the buck on their benefit dollars,” he said. “I think the more appropriate question they should ask: ‘How do I help my employees achieve retirement readiness?’ Now is a great time to review 401(k) plans and see how they stack up against those objectives.”

One West Des Moines banker said he has not heard of any companies locally changing core benefits such as 401(k) matches.

“What I have seen is that some are changing their benefits for retirees, but not for their current employees,” said Tom Stanberry, chairman and CEO of West Bancorporation Inc. His company is not considering any reduction in its retirement match, he said.

“My philosophy is that the last thing you want to do is change anything that will lower employees’ morale,” he said.

Decreased match

Lind & Associates’ survey indicates that on average, employers have reduced the share of employees’ contributions that they’ll match. However, nearly 77 percent said they are offering a guaranteed match, up from 71 percent two years ago. That survey, in its 10th year, included responses from 954 randomly selected Iowa companies with 10 or more employees.

On average, the employer match was 58 percent of the first 4.9 percent in the 2008 survey, compared with 54 percent of the first 6.7 percent in the 2005 survey.

“So actually, between those years we did see a decrease in the match,” Lind said. “What we don’t know is how much of that is attributable to the economy. It may have been due to those employers having to pay for higher health-care costs. It wouldn’t surprise me that employers, with the economic climate, might be pulling back a little.”

Keith Gredys, CEO of Kidder Benefits Consultants Inc., said he believes many of his company’s clients are taking a wait-and-see stance. The West Des Moines firm administers approximately 1,100 retirement plans nationwide.

“Most are discretionary (matches); as a result, they have some time to think about it as opposed to having to do something when the end of the year comes,” he said.

How each plan reacts to the economic turmoil depends to a great extent on the industry the plan’s sponsor is in, Gredys said. Many of the professional groups for which Kidder manages plans appear likely to continue matching employee contributions, he said.

Profit-sharing contributions are more likely to be adjusted than matches, Gredys said.

“We’ve had a few calls from clients saying they may not put in the maximum they had in the profit-sharing piece, but they will still put one in,” he said. “Because it’s discretionary, they have time to decide whether they’re going to have an impact or not.”

As for employee contributions in plans administered by Principal, relatively few individuals seem to be pulling out, Long said.

“In the last month, less than 1 percent of participants decreased or stopped their contributions,” he said. “So we’re not seeing that kind of knee-jerk reaction; there’s a more proactive judgment leading the day.”