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No match for 2008?

Question: My company just announced that they are canceling the 401K match for all of 2008. It is now middle of Jan 09. I understand that they are free to cancel matching at anytime, but to cancel the match for all of the past year's contributions? Is this legal? Christina, Los Angeles, CA

Answer: A growing number of companies are saving money by reducing or eliminating the company match, including General Motors, FedEx, Eastman Kodak and Frontier Airlines. The typical matching contribution in a 401(k) or comparable savings plan is 50 cents for every $1 the employee puts in, up to 6% of the employee's contribution. Of course, some companies do more and some do less. Companies are desperate to conserve cash and hold on to employees, which is why they get rid of the match. But from a public policy point of view it's a terrible move.

Now, most publically traded companies that have suspended their match have done it going forward. But what happened to you can be done. It all depends on the plan's details. (The law gives companies enormous flexibility when it comes to their retirement savings plan.) For instance, when your employer set up its retirement plan it had a choice between providing a "fixed" match or a "discretionary" match. The most common--the one we're familiar with--is a fixed match contribution. But with a discretionary match (or profit sharing match) the company doesn't have to do it if dismay sets in among management after tallying up the results for the year. Your employer realized the profit wasn't there, and it took advantage of its "discretion" not to fund the plan.

A sign of the times? According to a recent the Wall Street Journal story Starbucks switched starting Jan 1, 2009 to a "fully discretionary match" from a "fixed employer match." In other words, the company can decide whether or not to match contributions into the retirement plan.

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