Participant contributions declining; loan requests, hardship withdrawals on the rise
Recent economic woes have had a decided impact on the funding of defined contribution plans. According to the 6th annual Retirement Plan Survey, conducted by Grant Thornton LLP, Drinker Biddle & Reath LLP and Plan Sponsor Advisors, one fourth (26%) of employers have either scaled back their contributions or eliminated the company match altogether in an effort to reduce costs. What's more, some employers are in no hurry to reinstitute previous benefits: among those who have scaled back or eliminated contributions, 53 percent have not yet decided whether to return to previous levels in 2010 and 33 percent have no plans to do so.
Plan participants have also changed their contribution patterns in response to the economic downturn. One-third (33%) of plan sponsors indicated that participants decreased their contributions, while 56% say they have seen increases in loan requests and 34% of plans have had increased hardship withdrawals. However, only seven percent of plan sponsors reported large increases in loan requests, and just three percent of plan sponsors reported significant increases in hardship withdrawals
"The recent economic challenges have certainly affected the funding — including employer and employee dollars — of defined contribution plans. While most are taking a wait-and-see approach in 2010 with respect to employer contributions, the fact that one fourth of employers have taken significant measures to adjust contribution plans is quite telling of the times," said Debbie Smith, an Employee Benefits practice partner with Grant Thornton LLP.
"Our survey shows some interesting changes in contribution patterns among plan participants. Yet even in times such as these, it seems that the majority are staying the course and leaving their retirement accounts alone," said Dave Wolfe, partner in the Employee Benefits and Executive Compensation practice at Drinker Biddle & Reath.
Salaries, bonuses and workforce reductions
The continued financial crisis has led many companies to make tough decisions regarding salaries, bonuses and workforce reduction. Forty-three percent of respondents said they had experienced a reduction in force, and 16% said they had instituted a hiring freeze. However, approximately 34% of respondents experienced no change in the level of their workforce. Forty-nine percent of respondents instituted salary freezes, and 17% capped the rate of salary increases. In addition, 19% said the rates of bonuses were reduced, and 11% froze bonuses. Nearly one-third (31%) of respondents indicated that they did not see a change in compensation practices during 2009.
On April 8th, Grant Thornton, Drinker Biddle & Reath and Plan Sponsor Advisors will be conducting a complimentary webcast to explore the results of the 6th Annual Retirement Plan Survey. For more information, please contact Kristin Ehrhardt.
To download a copy of the Retirement Plan Survey 2010, please go to http://www.gt.com/retirementsurvey.
Contacts:
Grant Thornton LLP
Amy Smolensky
T 312.485.0053
EAmy.Smolensky@gt.com
