It's not every day that people get fired up over retirement planning, but that's what happened at AOL last month when employees lashed out over the company's move to make year-end, lump-sum contributions to their 401(k) plans instead of matches every pay period.
In the aftermath one state regulator wants to know how many other companies have made that switch. Massachusetts Secretary of State Bill Galvin says most people are less than mindful about saving for retirement. "Especially younger employees. When they get their 401(k) statement they toss it in the heap with everything else. I know I was guilty of that for many years."
That's a big mistake, Galvin adds, because pension plans are a thing of the past. He says American workers are more dependent than ever on their 401(k)s for retirement savings, and they stand to lose money if their company contributes only once a year. "They’re going to suffer the loss of whatever benefit of compounding – that is having that money in their account earning interest for that whole year –would be." Add to that if you leave your job mid-year you can kiss the entire contribution goodbye.
Galvin says people deserve to know in advance when their employers stop making 401(k) matches with every paycheck, and why, so he’s asked two-dozen of the country’s major 401(k) providers to tell him by March 10th how many companies have switched to once a year. The largest of those providers, Fidelity Investments, tells Marketplace: it’s a small number – and mostly large employers.
"You have increased cost of benefits; that has to be covered," says economist Robert Merton, a Nobel Laureate in Economics and a Professor of Finance at MIT. He points out that some of the companies in question could be trying to avoid other, more painful cuts such as health care benefits, but he says they should be transparent about it. "You have to not look at the one act, you have to look at why they did it, or at least why they said they did it. Almost everything is a tradeoff, so being informed about it is helpful."
Massachusetts Secretary of State Galvin says Congress might have to get involved if more companies move to once-a-year matching.
At the Employee Benefits Research Institute, president Dallas Salisbury says the rising cost of health care could drive that trend, and workers should expect changes. "Overall costs in the economy and their overall pay package gets adjusted all the time," he says. "If they think they’re not being treated fairly then go look for a new job."
Salisbury says, bottom line, whether people choose to save enough money on their own is what will determine when and how they can retire.