For many workers who were already struggling to save for retirement, the decision that many employers made to cut matching contributions on their 401(k) plans added insult to the injury that the bear market caused. Now, though, a new study has looked more closely at what led companies to cut back on their employer matching -- and the implications it has both for workers and for investors in those companies.

The matching boomerang
The Center for Retirement Research at Boston College recently asked this question: Why did employers suspend or cut their matching contributions? Far from an isolated phenomenon, more than 200 companies cut back on their employer matching according to the study, affecting more than 2.4 million active 401(k) participants. That corresponds to about 5% of the total number of people covered by 401(k) plans. Some huge employers were among those making cuts, including the following:


No. of Workers Affected

Sears Holdings


Starbucks (Nasdaq: SBUX)


JPMorgan Chase (NYSE: JPM)




Ford Motor (NYSE: F)


Source: Center for Retirement Research.

At the time, it was easy to conclude that the cuts were just the latest step in a progression of moves away from company-provided pension plans toward leaving workers solely responsible for providing for their own retirement. For years, companies have moved away from defined-benefit pension plans and toward contribution-based retirement plans like 401(k)s. For instance, pension freezes at companies like IBM (NYSE: IBM) and Verizon (NYSE: VZ) several years ago left new workers without the same pension benefits that long-term employees enjoyed.

Much ado about nothing?
But what the CRR research shows is that rather than a permanent removal of worker benefits, suspending matching contributions was simply a short-term response to the crisis situation that the market meltdown created.

In particular, the report looked at a number of financial factors within companies that cut back on employer matching. Among the statistically significant findings were the following:

  • Large companies were more likely to suspend matching than smaller ones, perhaps because the expenses associated with their 401(k) matching were higher than those of smaller firms.
  • In addition, companies in the manufacturing industry were also more likely to cut. The study argues that those companies were particularly hard hit by global competition and therefore were in a fairly weak position financially.
  • In general, companies with liquidity problems -- as measured by the quick ratio as well as by failing to forward employees' 401(k) contributions in a timely manner -- were more likely to cut back.

Once the severe liquidity problems caused by the financial crisis went away, many companies found themselves in a better position to provide matching benefits. That's likely a major reason why several of the largest employers to cut matching contributions, including FedEx and American Express (NYSE: AXP), have already restored their matching. Many other employers expect to follow suit later this year.

What to look for
From an investor's perspective, the study suggests that a decision to cut 401(k) matching is a signal that a company is having severe liquidity problems. Rather than seeing cuts as simply a further sign of changing times in retirement benefits, cutting back on matching could be seen as one of many drastic cash-saving measures, including reducing or eliminating dividend payments. If you own shares of a company that announces a 401(k) matching suspension, you'll want to look closely to make sure you understand the company's liquidity position.

Conversely, as a worker, suspending 401(k) matching may not be as big a deal as you may have initially feared. Despite many concerns about 401(k)s generally, your employer plan is a vital tool toward helping you retire securely. And although workers need to be vigilant to protect their benefits, the fact that many employers are restoring their matches is a positive sign that employers aren't abandoning their commitment to their workers. That might change in the future, of course -- but for now, it appears that many workers can breathe a sigh of relief.

Is your 401(k) out of the woods, or do you think the problems are only beginning? Speak your mind in the comment section below.

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Fool contributor Dan Caplinger likes his 401(k) just fine. He owns shares of Starbucks. American Express is a Motley Fool Inside Value recommendation. Ford Motor, FedEx, and Starbucks are Motley Fool Stock Advisor picks. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy never cries wolf and doesn't think the sky is falling.