Most Sponsors Kept Up Contributions during Downturn

More than three-fourths of surveyed plan sponsors of a defined contribution plan continued their matching company contributions during the economic downturn.

The survey from the Profit Sharing/401k Council of America (PSCA) also found that almost three-fourths (73.2%) of surveyed companies continued their non-matching company contributions during the 2008 to 2009 economic downturn.

PSCA said more plan sponsors suspended or reduced non-matching company contributions than matching contributions. Furthermore, more large companies (more than 5,000 participants) than small companies suspended contributions. Of companies that suspended matching contributions, almost half (46.7%) have restored the match or plan to restore it within the first quarter of 2010, with more large companies (52.7%) doing so, according to the survey results.

Among survey respondents, 4.7% of companies increased their matching contributions during the downturn.

The survey also revealed a clear correlation between availability of matching company contributions and participation rates, as 72.9% of companies that suspended their match experienced a decrease in plan participation versus only 14.4% of those companies that maintained matching contributions. However, more companies that did not change their match experienced an increase in plan participation (17.9%).

A significant portion of companies that experienced an increase in participation, as well as those that maintained participation levels, stated that it was a result of automatic enrollment. The data indicated that more new hires who were automatically enrolled did not opt out during the tumultuous economic time compared to before.

PSCA said that its recent survey of companies sponsoring a defined contribution plan also found that most sponsors stepped up to help their participants during the 2008 to 2009 economic downturn. More than half of respondents (54.3%) indicated they increased their employee education efforts.

The Impact of Economic Conditions on 401(k) and Profit Sharing Plans” looked at the 2008 to 2009 experience of 508 plan sponsors. The survey was conducted in October.

The PSCA also recently looked at 403(b) plan sponsors (“Most 403(b) Sponsors Kept Match during Downturn“).