FedEx made the headlines over the summer when the company said it planned to reinstate the match into its 401(k) programme. In doing so, the company took a step to reverse one of the more common trends in the pensions industry since the start of the financial crisis: freezing the matching contribution.
The package delivery company said it would fully restore its 401(k) match as of January 2011. The benefit was originally cut at the end of 2008. FedEx announced the change as it raised its earnings outlook for the quarter ending 31 August.
But we shouldn’t be quick to assume this signals a resumption of pre-crisis match levels across the board.
Data by Towers Watson released at the end of the second quarter showed that 18% of the companies interviewed by the consulting firm had suspended or reduced their company match since September 2008. Of those, less than half have restored the benefit.
And when they do, consultants say, the matching landscape will look much different both inside and outside the US.
In a discussion with Craig Burnett, Mercer’s European head of DC about the future of DC pension schemes, he said he’s seen the emergence of a two-tiered matching model outside the US, where a base contribution amount is offered, and a larger discretionary amount is paid if the company meets certain hurdles. Consultants at Towers Watson saw the same trend, with companies offering better matches when times are good, and smaller matches when times are bad.
Presumably, the good times will offset the bad, and both retiree and plan sponsor will be in a better position. But in some ways this arrangement is one-sided. Sure, the employee participates in the up-swing, but the base pension amount will almost certainly be lower than what they would have received otherwise given the lower accrual rate resulting from a smaller match.
But for the plan sponsor, this is a win-win situation: it lowers the overall cost of running the DC plan while giving them control over the cash flow dedicated to running the plan in the first place. For the employee, they may have to sacrifice a larger pension for a fluctuating, but more sustainable one.
The Pensions and Lifetime Savings Association (PLSA) is in the process of convening an industry-wide group to take forward the work of the Institutional Disclosure Working Group (IDWG).
The Transfers and Re-registration Industry Group (TRIG) has given its support to an initiative which aims to complete occupational pension transfers within three weeks.
Scottish Widows has completed a bulk annuity deal for the Hitachi UK Limited Pension Scheme.