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401(k) matches making a comeback

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By Gail MarksJarvis
Chicago Tribune
After leaving employees to fend for themselves with retirement savings plans in the 2008 financial crisis, companies are now giving employees extra money to stash away for their futures in 401(k) plans.
Companies have been restoring 401(k) matches abolished amid frantic cost-cutting during the financial crisis and recession.
Matches are considered powerful incentives to get people to save money every payday, because matches are often worth hundreds or thousands of dollars in extra pay a year per individual.
Charles Schwab reported recently that those offering matches are back to precrisis levels.
Schwab studied plans of about 1,000 midsize and large employers and found that 73 percent were providing matching money. That compares with 67 percent in 2009. In 2008, about 72 percent of companies had been providing matching money.
Besides offering matches to stimulate participation, companies are also adding advice so employees contribute more toward their future and invest correctly.
Despite research that shows people are worried about their financial futures, "it's a challenge to get people engaged" with 401(k)s, said Steve Anderson, head of Schwab Retirement Plan Services. Personal advice can change that, he said.
Research by Aon Hewitt has shown that about half of workers in their 20s pass up 401(k)s even though that means they miss out on the matching money their employers would give them.
And research done by Financial Engines has shown that when left to their own devices, only about a third of people with 401(k) plans invest money the way they should based on when they intend to retire.
To help fight inattention and mistakes with investing, Anderson said about 83 percent of employers in Schwab's study are offering advice, about double the 2005 numbers. In addition, to ensure that more people participate in 401(k) plans, about 42 percent of companies are automatically enrolling employees in their retirement plans.
With such an approach, employees are allowed to opt out of the 401(k) if they request it, but few do. Research suggests that people are carried along by inertia, contributing to 401(k) plans if they are placed into them automatically but skipping the plans if they must initiate enrollment themselves.
Anderson said that when people are getting advice with their 401(k)s, they tend to stick with the investment plan that was recommended to them before a stock market decline.



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