Wal-Mart Stores Inc., the largest U.S. private employer, plans to end profit-sharing contributions in February, replacing them with matches to employee 401(k) retirement plans to bring down benefits costs.
The retailer will match contributions up to 6 percent of eligible employees’ pay, according to a memo obtained by Bloomberg News. Previously, Wal-Mart automatically put up to 4 percent of pay into the profit-sharing plan, according to spokesman David Tovar.
Since taking over in 2009, Chief Executive Officer Mike Duke has pledged to slow expense growth, aiming to counter five consecutive quarters of sales declines at U.S. stores open at least a year. The switch by Wal-Mart, which has about 1.4 million U.S. employees, will only benefit those who are in the plans, so staff will need to join to profit from the move, said retirement consultant Byron Beebe.
“It does require employees to participate,” said Beebe, the marketing head for the U.S. retirement practice at benefits consultant Aon Hewitt in Cleveland. Beebe said 401(k) participation rates in the retail industry are lower than the average, which is around 75 percent.
Tovar wouldn’t disclose what percentage of Wal-Mart’s 1.1 million eligible employees currently contribute to the 401(k) plan, which is administered by Merrill Lynch & Co. Employees must wait a year before becoming eligible, he said.
Kalila Sams, 24, a customer-service manager at a Wal-Mart in Atlanta, said she would welcome a 401(k) match. Sams, who has worked at the retailer for about a year, said she earns $10 an hour for 20 hours a week.
“Things are tight right now, but it would encourage me to save because you’re putting money away before you see it,” Sams said in an interview.
Wal-Mart rose 5 cents to $54.41 at 4 p.m. in New York Stock Exchange composite trading. The stock has advanced 1.8 percent this year.
Some money saved from the switch will go toward quarterly bonuses for store employees, Tovar said. He said the move is part of a “comprehensive benefits package” that offers employees “the potential to receive more income today through our bonus incentive programs, and incentives to save and help them plan for retirement.”
Wake-Up Wal-Mart, a Washington-based group funded by the United Food and Commercial Workers union that has sought to organize the retailer’s workers, said the change showed “a fundamental lack of respect for associates.”
Out of Touch
“To demand that people who already make poverty-level wages begin to pay in order to receive any retirement benefits is out of touch with the reality of employees’ lives,” Jennifer Stapleton, assistant director of Wake-Up Wal-Mart, said in an e- mailed statement.
“Based on feedback from associates, we redesigned our plans to make them more contemporary, relevant and in line with what most companies already do,” Tovar said in an e-mailed statement in response to Stapleton’s remarks.
Retirement plans such as 401(k)s allow workers to put money in tax-deferred accounts for retirement. Employer matches to workers’ contributions help employees increase savings and provide an incentive for them to contribute, said Nancy Hwa, a spokeswoman for the Washington-based Pension Rights Center.
“There are very few companies that only have profit- sharing plans anymore,” said David Wray, president of the Profit Sharing/401k Council of America, a Chicago-based nonprofit representing companies with 401(k) plans. “Profit sharing is variable and up to the company’s discretion and a fixed match is more predictable.”
The most common contribution by larger employers is 3 percent if workers save 6 percent of their salaries, according to Robyn Credico, defined-contribution practice leader in North America for Towers Watson.
The number of participants in traditional pension plans, where employers generally provide retired employees with lifetime payments, fell to about 19 million in 2007 from 27 million in 1975. In that same period, workers in defined contribution plans such as 401(k)s increased to 67 million from 11 million, according to the U.S. Department of Labor.
Wal-Mart’s profit-sharing plan was created in 1971 by company co-founder Sam Walton, according to his biography, “Made in America.”
During the year ending Jan. 31, 2008, Wal-Mart contributed $724.4 million to 838,955 hourly employees in profit-sharing and 401(k) contributions, according to a May 2008 company press release. Data for more recent years wasn’t immediately available.