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April 29, 2013
The future of 401(k) matching programs: What changes lie ahead?

In an effort to cut costs during recessionary times in 2008 and 2009, many employers eliminated the employer match in the 401(k) programs they offered to their employees. Since then, most have reinstated their match, said Karl W. Kunkle, J.D., CPA, and he expects the employer match to remain for the foreseeable future.

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However, a move late last year by a major corporation has some wondering whether changes lie ahead for the employer match as millions of U.S. workers have come to know it. In December, IBM announced that starting in 2014, it plans to provide its company match in an annual lump sum at the end of the calendar year rather than in each paycheck, according to published reports and Kunkle, who is a partner in Schneider Downs Wealth Management Advisors, LP (, and a shareholder in the company’s accounting firm sister company, Schneider Downs & Co., Inc. (

IBM would not be the first company to go that route, but the corporation’s reputation for being “a leader in employee benefits” and for offering “very, very strong employee benefits” will prompt other employers and plan sponsors to take notice, Kunkle says. “It certainly will get noticed, and, because it will get noticed, that will influence other employers and plan sponsors.”

Kunkle, whose firm works primarily with large, privately owned companies, says most companies that provide matching currently fund their match “on a per-pay basis or at least a per-month basis.” However, the firm has clients who have switched to an annual lump sum payment, and there are two primary benefits of doing so.

First, plan sponsors make a retirement plan contribution only for those participants who still work for the company on December 31—therefore, promoting long-term retention, he says. Second, making an annual lump sum payment also enables employers to “hold onto their money longer,” Kunkle says.

When contemplating a potential switch to an annual lump sum match, he says plan sponsors should consider the impact on employees, since they could receive less money as a result.

Plan sponsors should also consider corporate goals. “Different employers look at plans differently,” says Kunkle. Some employers feel “paternalistic” toward employees and view the 401(k) savings plan and company match as a benefit that helps with recruitment and retention. Others, he explains, provide a match simply to meet discrimination test thresholds (i.e., what is the least amount the company must contribute to ensure rank-and-file participation, so the most highly paid employees will not be subject to restrictions on their contributions?).

Other retirement benefit trends
Kunkle identifies a few other “big picture” trends HR professionals should keep themselves apprised of regarding employer-sponsored retirement benefits.

First, he says a potential shift toward an annual lump sum payment for employer matches is in line with the trend of participants being asked to take on more responsibility for their financial security in retirement. “There is a trend away from employer-funded retirement to more participant-level responsibility,” he says. For example, “historically, many employees had defined benefit plans that provided them a monthly pension benefit to live on, and those are going away,” he says.

Second, 401(k) savings plans remain a viable recruiting and retention tool. “As the economy heats up and there is more demand for employees, it will be important for a company to have a strong 401(k) plan,” he says.

Third, with the recent release of U.S. Department of Labor final regulations on full fee disclosure, Kunkle sees a greater focus on plan sponsors’ fiduciary responsibility.

Finally, as federal lawmakers grapple with tax policy and debt issues, Kunkle recommends keeping watch for any potential efforts to change tax laws that provide tax benefits for contributions to retirement plans. However, assuming that existing tax benefits for participants and plan sponsors remain, Kunkle expects 401(k) matching programs to continue. “The rules are set up now in a way that it’s important to encourage people to save for their retirement, and the employer match is a good way to do that,” he says. “I do see it continuing as a trend.”

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