At the height of the bull market, employee benefits packages were used to recruit new talent, but with massive layoffs occurring across the economy, those packages, including 401(k) benefits, are being trimmed.

But while many companies have been forced to scale back their matching contribution benefits, preliminary indications suggest that the net effect on asset flows into 401(k)s will be nominal, say industry observers.

Most of the benefits cuts have occurred to employee health and welfare packages in the form of higher premiums, but some companies are also eyeing 401(k) matching and profit sharing plans, said Trisha Brambley, president of Resources for Retirement Plans, a consultant to plan sponsors based in Newtown, Pa.

In fact, automotive giants General Motors and Chrysler have cut back on their employee 401(k) matching programs and in May Delphi Automotive Systems eliminated its employee match program all together. Moreover, last year the rate of employer matching contributions dropped from 3.3% of an employee's base salary to 2.5% because of declines in firms' overall profitability, according to the Profit Sharing/401(k) Council of America.

Holding Steady

Those cutbacks and reductions notwithstanding, fund companies will probably not notice a significant drop in 401(k) flows as a result of reduced matching rates, said David Wray, president of the Chicago-based Profit Sharing/401(k) Council. Quantifying how much of an effect reduced matching rates will have on asset flows into 401(k) accounts is difficult.

There is a lag in the availability of data showing the impact reduced matching rates will have on 401(k) flows, but anecdotal evidence suggests reduced rates will not hit flows too hard, he said. Employer matching contributions may have dropped last year compared to the previous year, but "fund managers haven't seen cash flow impact," he said. "It's not so significant where it has impacted the amount of money flowing into the 401(k) arena." That resilience is what makes 401(k) assets highly prized by asset managers, analysts say.

There are three general 401(k) matching contribution plans. The first is a fixed contribution plan in which companies set the percentage of employee base salary that they will match. About half of all matching contribution plans are of this variety and they rarely change, Wray said.

The other two plans are tied to profit sharing schemes in which a company will base its rate of matching contribution based on its profitability.

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