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Companies Suspending 401(k) Contributions

From the Financial Times, March 11 (hat-tip to The Automatic Earth). The article notes that the median size of a 401(k) account at the end of 2007 was $19,000–probably a lot lower now!

A wave of US companies are suspending payments to their staff 401(k) retirement plans in a bid to cut costs amid the economic downturn.

Saks, General Motors, newspaper group McClatchy, clothing company J.Crew, FedEx, UPS, Coca-Cola Bottling, Reader’s Digest, Motorola, Regions Financial and Sprint Nextel are among the growing list of companies which have suspended contributions.

Even the AARP, the influential advocacy group formerly known as the American Association for Retired Persons, will suspend contributions to its staff 401(k) plan from March 22 for the rest of the year.

The growing number of suspensions appears to strike a blow against the viability of 401(k) plans, which were introduced 30 years ago as the main way that Americans should save for retirement, replacing defined benefit pension plans. Companies typically offered to match employee contributions up to 5 per cent of annual salary.

The average 401(k) plan at the end of 2007 held about $65,000, but half of them held less than $19,000, according to a trade group, the Investment Companies Institute. They would hold much less today because of stockmarket falls. The suspensions mean that individuals can continue to contribute to their plans, but their companies will not.

Read the rest here.

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