Employers bringing back 401k matches

Good news for employees: About 80% of medium-size and large companies that suspended or reduced their company match to 401k programs last year are planning to restore their matching contributions in 2010.

But, the same survey also showed that employers don’t believe their employees have the ability to save enough for retirement and are looking for ways to help -- short of adding pension plans, of course.

The survey of 162 midsize to large U.S. companies by Hewitt Associates, a human-resources and outsourcing firm, found that only 54% of employers are confident their workers will retire with sufficient assets, down from 66% in 2009. Only 18% of employers are very confident their workers will have enough money in retirement.

• Bing: Best places to retire

"While there has been marked growth in 401k balances since the market recovery began, we still see too many workers not saving and investing in a way that will help them achieve their retirement goals,” Pamela Hess, Hewitt's director of retirement research, said in a news release. “Employers are trying to do their part to help -- which is why they are restoring their matching contributions and offering features and tools that push workers to save more throughout their working years."

This should not come as a surprise, wrote Robert Powell, the editor of Retirement Weekly, in The Retirement Blog at MarketWatch.

Consider: Fewer and fewer workers have a traditional pension plan at work. Less than half of workers have a 401k plan at work. Of those who do have a 401k plan at work, just 75% contribute to the plan. And of those who do contribute to a plan, the average contribution works out to about 7% of compensation. The average 401k balance of those in their 60s who have been saving for many, many years is less than $200,000. And that -- not including other assets and Social Security and earned income -- might be enough to cover four to perhaps seven years of expenses in retirement.

To help their employees improve their retirement savings, according to the survey, more companies are looking at ways to improve the value of employees’ 401k accounts, including offering automatic rebalancing, automatic contribution escalation and online investment guidance. More companies are also considering offering a Roth 401k, and more firms plan to increase the amount of employee communications about the fees associated with the plans.

• Video: Where should a 40-year-old invest?

Among the large employers that will reinstate company matches in 2010 are American Express and FedEx, CNN Money reported.

If your employer offers 401k matching funds, you should strive to contribute at least enough to get the maximum match. A chart at 401k Planning shows the difference an employer match can make in retirement savings. Using one of the site’s calculators, the chart showed that a worker who made $25,000 a year and contributed 6% of his salary to his 401k plan would have $240,187 after 35 years without an employer match. But if the employer matched half his contribution, he would have amassed $360,283 for retirement.

If your employer hasn’t yet reinstated its matching funds, or never did match employee contributions, the best strategies may be to increase your own retirement savings and open a traditional or Roth IRA. 

Related reading:

• Please don’t cash out your 401k
• No 401k match, no problem
• 5 new rules to end your 401k crisis