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Schwab ends contributions to 401(k) retirement plans

Charles Schwab Corp., which is struggling through the worst slump in its history, on Thursday became the latest in a string of large companies to tell employees it would stop making matching contributions to their retirement-savings plans.

The move follows extensive layoffs and is a painful cost-cutting move for Schwab and its chairman, Charles R. Schwab, who has been a forceful champion of the 401(k) plan, a retirement instrument that has been replacing traditional pensions in the workplace for more than a decade.

Other companies that have said they are reducing or halting such contributions include Ford Motor, DaimlerChrysler, Goodyear Tire & Rubber, Great Northern Paper, Tech Data, El Paso Corp. and CMS Energy Co.

Employees are usually free to choose whether to participate in 401(k) plans, and benefits specialists say that the presence or absence of a company matching contribution is one of the most powerful factors in their decisions. Until now, the incentive has been strong enough to keep employees from dropping out of the workplace retirement programs even as market returns have waned, survey data suggest.

As more companies eliminate their contributions, the rate at which Americans save for retirement — already considered insufficient — may drop still further.

"Eliminating a match has potentially disastrous effects, based on all the empirical evidence," said Alicia H. Munnell, director of the Center for Retirement Research at Boston College. "People are not good at saving. You have to have a long time horizon, and you really have to have something that induces you to do it. Employer matches are a very attractive incentive."

Matching contributions have been very popular with employees, helping to make 401(k) plans the second most-prized company benefit, after health insurance, according to a survey by the Principal Financial Group, a large provider of plan administrative services. But as the economy sputters, companies are reviewing retirement plans, health insurance and other benefits, seeking ways to reduce labor costs without actually cutting jobs. However painful it may be to cut 401(k) matching contributions, it can still be easier than cutting other benefits, such as traditional pensions, which are tightly regulated and cannot be reduced once they have been earned.

"That's one reason why these plans are popular with employers," said Ed Ferrigno, vice president of the Profit Sharing/401(k) Council of America. "They allow them to adjust their program in conjunction with the business cycle."