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April 14, 2009 at 08:00 PM
An employer can save an average of about $1,500 per employee per year by stopping 401(k) plan contributions.
Consultants at Hewitt Associates Inc., Lincolnshire, Ill., have published that estimate in a discussion of U.S. employers’ moves to suspend 401(k) plan employer matching contributions.
Many large and midsize employers can save millions of dollars by suspending the match for 1 year, but, because of the impact that suspensions have on employees’ ability to save retirement, employers should suspend the match only as a last resort, Hewitt consultants write.
The $1,500-per-employee savings assumes an employer matches 50% of an employee’s contributions up to 6% of the employee’s pay.
For a typical large U.S. employer, cutting that match can save a total of about $25 million per year, the consultants estimate.
The average midsize employer could save about $10 million by suspending the match, and a typical small employer could save about $2 million, the consultants predict.
But the Hewitt consultants note that many employees will reduce or eliminate their own 401(k) plan contributions once an employer suspends matching contributions.
