Wish You Were Here: Kentucky bank bucks trend, increases 401(k) match

Finally some good 401(k) matching news right when we could use it. Not willing to follow the big boys down the road of cutting 401(k) matching contributions, Louisville-based Republic Bank not only has increased its 401(k) match, it has cut its vesting time to give employees matchung funds faster, PlanSponsor reports.

Chairman and CEO Steve Trager told the Louisville Courier-Journal said the shift was spurred by the bank's strong results last year (another departure from its larger counterparts). Republic will match 100% of employee 401(k) contributions, up from half, according to reports, and vest employees fully after two years rather than six.

Tip of the Day: White-knuckle your 401(k) match

In light of the economic recession and the news that big-name employers like GM, Sears, FedEx, Motorola and Starbucks have suspended 401(k) matching contributions, you may be tempted to keep the option as an open hole in your company's ever-tightening belt.

That, however, would be a mistake.

Why? For one, according to U.S. News, eliminating 401(k) matches may not even produce enough cost savings to impress shareholders/customers. Second, research cited in the same U.S. News article shows despite general investor inertia, companies that drop their match could see participation drop by 5 to 11 percentage points

Third, for employees who stay in the plan, "It's penalizing the folks who are doing the right thing (by) contributing to their retirement," Alec Dike, a senior financial counselor for Watson Wyatt, told USA Today. And fourth, move could scare off the very shareholders/customers you're seeking to calm, as Dike says, "it suggests you are in worse financial straits than you really are."

What are your thoughts? Is your company considering eliminating/already eliminated its 401(k) match? Why/why not? Comment below.

Tip of the Day

Be a matchmaker. New survey results from Charles Schwab reveals a link between how a company offers its 401(k) match and employee saving levels. From 2004 to 2007, employees were most likely to choose the plan’s “match ceiling” as their deferral level in order to maximize the employer contributions they can receive. Benefit managers can leverage such tendencies to maximize their employer matching plan as well as juice employee deferrals.

For example, Schwab explains:
* Company A offers a 100% match, up to 3% of employee pay.
* Company B offers a 50% match, up to 6%percent of pay.

In both these cases, an employee could receive a 3% match, but, according to Schwab's findings, employees in Company B's plan would be more likely to defer the extra 3% into the plan to receive the maximum employer match. The maximum cost of the match to the employer remains the same.