Massachusetts opens inquiry into 401(k) plan contribution delays

Galvin seeks information on companies that have altered contributions to employee 401(k)s

Feb 24, 2014 @ 2:54 pm

The Massachusetts Securities Division is calling on 401(k) plan administrators to report how many companies have shifted to a lump-sum matching contribution once a year, a change that can undermine worker savings.

The unit sent a letter to the 25 largest providers of 401(k) plans, requesting the number of employers who pay distributions at year-end, when the move was made from more frequent payroll periods and what workers are told about the potential consequences, the division said in a statement today.

“At a time when most Americans have much of their retirement savings in these 401(k) plans, it is crucial that they are made aware of the risks involved when a company shifts to a year-end distribution,” William F. Galvin, Massachusetts secretary of the commonwealth and chief securities regulator, said in the statement.

Check out our profile on how William Galvin has galvanized the broker-dealer industry

Companies across industries are squeezing 401(k) contributions by holding back on the amount and timing of their matching funds, making it harder for U.S. workers to save for retirement, Bloomberg News reported on Feb. 14. AOL Inc. called attention to the practice earlier this month when Chief Executive Officer Tim Armstrong announced plans to make payments in one sum at the end of year, citing spiraling health-care costs. The move touched off a controversy, Armstrong apologized and the company reversed its decision.

Mr. Galvin said in an interview Monday that AOL's maneuvering and news reports including Bloomberg's showing that the practice was more widespread influenced the division's decision to open the inquiry.

MISSING GAINS

Companies save money by making lump-sum payments into 401(k) accounts at the end of the year or after, according to the Massachusetts statement. Employees miss out on gains on matching contributions that could accrue during the year and employer contributions may go into a declining market. Workers may also lose out if they leave the company before Dec. 31.

The Standard & Poor's 500 Index of stocks gained 30% in 2013 and then declined 3.6% in January as employers including JPMorgan Chase & Co. made their matching contribution for the prior year. International Business Machines Corp. and Charles Schwab Corp. are among companies making annual payments, according to the statement.

The Securities Division requested that 401(k) providers submit the requested information by March 10, according to the statement. Fidelity Investments, based in Boston, is the largest administrator of 401(k) accounts.

(Bloomberg News)

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