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Workers Can Forget About a Recovery

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Less than two years after the worst crisis ever to hit the U.S. economy, corporate profits have rebounded sharply, leaving plenty of companies in great shape. Unfortunately, workers generally aren't sharing in that success, and many may soon find that when it comes to taking care of financial needs their employers used to handle for them, they're entirely on their own.

A recovery for some
Beginning in 2008, companies throughout the economy were in dire shape. When the credit markets began to seize up, liquidity became extremely scarce, and many companies were forced to take extreme measures to free up liquidity. Dividend investors faced the pain, as companies from Bank of America to Dow Chemical slashed payouts to conserve cash.

But employees also suffered. Wells Fargo and Kimberly Clark were among those companies that froze pension plans for some of their workers. In addition, millions of workers saw employer contributions to their retirement plan accounts cut back or eliminated entirely.

Now that times are better, you might think it's high time that some of the sacrifices made to help companies survive through the downturn were paid back. Many companies, for instance, have started increasing dividends again. But workers haven't been as lucky. In too many cases, employees are continuing to feel the pain even after the stock market recovery has given shareholders in those companies multibagger returns.

Haves vs. have-nots
A disturbing number of workers still haven't seen their benefits restored despite the recovery. Sears Holdings (Nasdaq: SHLD  ) has seen its business continue to struggle, and it hasn't reinstated employer matching. Wynn Resorts (Nasdaq: WYNN  ) has seen its stock price rise five-fold from its 2009 lows, yet the company continues a hiring freeze, a no-bonus policy, and its suspension of matching contributions.

Not every company has slammed the door on their employees. American Express (NYSE: AXP  ) , Vail Resorts (NYSE: MTN  ) , and Morningstar (Nasdaq: MORN  ) are just a few of the many companies that have reinstated all or part of their matching contributions recently after temporarily suspending them. Overall, though, a Towers Watson survey of large employers shows that of those that cut back on 401(k) matching, nearly half still haven't restored those benefits.

What to do
What underlies the current disparity between corporate prospects and workers' benefits is a simple question of supply and demand. With unemployment stubbornly hovering around 10% and recent job growth coming in below expectations, employers in many cases can choose from a big pool of qualified, desperate prospective employees. You'll find exceptions in some industries, but for the most part, workers aren't in any position to demand better benefits.

That doesn't mean, though, that workers don't need the benefits their employers used to provide for them. Unfortunately, the current trend suggests that you're going to have to fill in the gaps that employer cuts have created on your own.

To do that, you need to figure out how much those benefits are worth. With something like employer matching, it's easy to take a standard 3% match and calculate how much in additional savings you need to set aside to make up for a missing employer contribution. With other benefits like disability insurance, you can get prices for private coverage that would replace what an employer might typically provide as part of your benefits package. In some cases, such as with retiree health or traditional pension plans, aren't as easy to figure out and in some cases are nearly impossible to replace independently.

Hang in there
After you run the numbers, you'll more fully understand just how valuable employee benefits can be. Given the current state of the economy, you may not be in a financial position to be able to replace everything your employer used to provide for you. Whatever you can set aside, though, will put in that much better a position to handle a labor market that shows few signs of getting markedly better anytime soon.

What's been your experience with employee benefits and your employer? Tell us your story in the comments below.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

Fool contributor Dan Caplinger pays for his own benefits. He doesn't own shares of the companies mentioned. American Express is a Motley Fool Inside Value recommendation. Morningstar is a Motley Fool Stock Advisor pick. Vail Resorts is a Motley Fool Hidden Gems pick. Kimberly Clark is a Motley Fool Income Investor selection. The Fool owns shares of Morningstar and Vail Resorts. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy turns over all its benefits to you.


Read/Post Comments (7) | Recommend This Article (16)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 12, 2010, at 8:15 PM, ISeeThemNow wrote:

    "Less than two years after the worst crisis ever to hit the U.S. economy,...".

    I hardly think this is the worst crisis to hit the US economy. Everywhere I look I see obese people, 10-year old girls wearing belly shirts exposing so much fat it is drooping over their belts, 2-4 cars parked per household in many neighborhoods, people incessantly texting eachother on all kinds of useless electronic devices, adults in the workplace who have no work ethic whatsoever...etc.

    Has this level of sloth, luxury and abundance ever been seen in any other time period throughout history?

    Seriously, lets get some perspective here and stop being over dramatic. If this was the worst crisis to hit the US, then we truly have nothing to fear. What an insult this kind of comment must be on those who lived through the depression, world wars, civil war, revolutionary war...need I go on.

  • Report this Comment On July 12, 2010, at 8:34 PM, xetn wrote:

    This article sounds like every worker deserves some benefit from an employer. What utter nonsense. A benefit is not an obligation nor a right.

    "Benefits" came about because during WWII, there were wage and price freezes and the only way companies could lure employees were to provide things like health insurance. Over the years they have come to be expected and/or mandated.

  • Report this Comment On July 12, 2010, at 8:58 PM, holosys wrote:

    Benefits? Thank your lucky stars if you're working. I went from a six figure salary to just under six figures and elimination of all benefits. The U.S. is going third world, folks, so get ready to either pull out all the stops to prosper against deteriorating employment coniditons, or consider fleeing the U.S. for greener pastures in Europe, Australia, or perhaps somewhere else. I see opportunity in the U.S. even if it becomes a third world disaster when it comes to employment, but I'm ready with passport if the economic bottom drops completely out from under us.

  • Report this Comment On July 12, 2010, at 10:26 PM, ISeeThemNow wrote:

    Agreed with the prior two comments. If people think 2008 was such a crisis, they better be afraid of whats awaiting in the not too distant future.

  • Report this Comment On July 13, 2010, at 2:23 AM, polenium wrote:

    Large Corporations like to externalize as many of their responsibilities as possible. They are taking advantage of the economic downturn to slash wages and benefits and put the burden for vital services on middle and low income taxpayers.

    Obama was incredibly foolish is failing to even try to push through a single payer health insurance system that would lighten the burden on those who have to pick up the pieces from this incredibly inhumane and economically unjust system.

    Most economists will agree that you can't have a vibrant economy when workers are oppressed and the middle class is destroyed. We've seen plenty of evidence that those with great power and resources don't care what happens to the economy and can't see much beyond their own noses.

  • Report this Comment On July 13, 2010, at 1:31 PM, bozomonkey wrote:

    the first guy has a great point. It isn't an extreme crisis if everybody is still fat and lazy.

    I would argue that the productivity in this country is so high, that the basic needs of food, clothing and other necessities are still cheap and in no danger of being in crisis. What is in "crisis" is a the higher standard/fad/luxury/excess types of things. Nobody is starving, you just aren't buying a new car as often. Notice I didn't mention shelter/housing? Still many problems that won't be ironed out overnight. And the construction industry is suffering and is tied to housing in large part and will probably take the longest to recover. And whose to say there wasn't a construction industry bubble as well? Sure there was. If every Tom, Dick and Harry is either investing/speculating on real estate developments and every Tina, Dina and Harriet is pulling out home equity money to remodel kitchens, bathrooms and do home additions then the construction industry was in a bubble as well and not the norm. So it won't recover to the same level unless people get real estate fever again.

  • Report this Comment On July 15, 2010, at 12:39 PM, JGBFool wrote:

    My company just reinstated the 401k match, thankfully. While the match was gone, I did what Mr. Caplinger recommended and upped my 401k contribution to the maximum level allowed by the company. I wish the company allowed employee 401k contributions up to the IRS maximum level instead of up to a certain percentage of my income, but the HR folks which I contacted about this seem to have placeed my suggestion in the cylindrical filing cabinet.

    The company pension plan remains frozen-- as I expected. I doubt it will ever be reinstated. I was surprised to find out that I was "vested" for some amount of pension benefits, but I am not counting on that as a substantial portion of my overall retirement monetary needs.

    I expect the PPO health insurance option will be gone by next year, and probably the higher level HSA+High deductible plan.

    I don't fault the company, really. It's not an employee's job market.

    That said, I'm certainly keeping my eye out for job opportunities in other industries that have a better chance for recovery than the industry in which I currently work.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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