Fidelity Says 401(k) Match is Coming Back

Fidelity reported that more than a fourth of companies that cut their 401(k) match are now reinstating the match programs as the economy shows signs of recovery.

A Fidelity analysis of employer and employee actions during the third quarter of 2009 in defined contribution plans it recordkeeps revealed that of the 8% of companies that either reduced or suspended their company match earlier this year, 27% have already reinstated the match or plan to in 2010. The trend is especially true among larger plans of 5,000 participants or more, with 44% of those employers having already reinstated their match or planning to in the next year.

Fidelity said a review of deferral rates in the first quarter of 2009 showed that in plans where the company match was suspended, participants were nearly twice as likely to decrease their deferral rates. In Fidelity recordkept plans with a company match suspension, 11% of active participants decreased their deferral rates versus only 6% of active participants in plans where there were no changes made to the company matches during the same period.

The Fidelity review also found that as equity markets continued to rally in the third quarter, the average 401(k) account balance rose nearly 13% to $60,700 from the end of quarter two, and increased 28% from the end of the first quarter low of $47,500. The two consecutive quarters of gains in the equity markets also had a positive impact on the longer-term investment returns for 401(k) participants.

Using a personal rate of return (PRR) based on a calculation of an account’s investment time-weighted performance during a given period of time—excluding contributions, withdrawals, loans, and certain other types of account activity made either by the participant or plan sponsor—Fidelity found that as of September 30, the median one-year PRR for participants was a positive 0.4%. Over the past five and 10 years, participants had annualized median PRRs of 3.2% and 1.9%, respectively.

The Fidelity data is based on accounts of more than 11 million participants in more than 17,000 plans.