Retirement planning isn't getting any easier.
During the economic crisis two years ago, many companies suspended their 401(k) matches. Last year and in the first half of this year, about 75 percent of firms restored matches but about 25 percent didn't. Of those that renewed the practice, 69 percent brought back the match at a lower level, according to a study by human resource consultant Towers Watson.
This is particularly troubling when it is increasingly clear that saving enough for retirement is a challenge that many people will have a hard time meeting. Part of the reason is that even if they save diligently, the expenses associated with many 401(k)s will whittle down the total substantially from what it might have been otherwise. Without the match, workers could be in real trouble.
According to the U.S. Department of Labor, an employee with a 401(k) balance of $25,000 and 35 years until retirement will grow his account balance to $227,000 at a 7 percent rate of return with fees at 0.5 percent. Up the fees by a percentage point to 1.5 percent, which is what investment resource Morningstar says is average, and this employee's balance will drop to $163,000 at retirement, a 28 percent difference. Of course, these calculations don't take into account additional contributions, but they certainly illustrate the effect of fees.
In its report on 401(k) matches, Towers Watson says to corporate clients that "matching contributions are a major tool in enticing employees to participate in (defined contribution) savings plans ... and plan participation will likely decline without them," causing problems for employers down the road because their older employees might not save enough to retire in a "timely and efficient manner."
There isn't much evidence that this concern is keeping too many employers up nights, but it certainly should cause workers to lose some sleep.