Starbucks Corp will make discretionary matching contributions to 401(k) retirement plans for its 2009 plan year but employees will face higher health-care costs, Chief Executive Howard Schultz said in a memo to employees on Monday.

Starbucks, known for its generous health-care benefits, said those costs have risen sharply over the past several years on skyrocketing U.S. health care expenses.

In the memo, Schultz said the company now spends almost as much on health care for our partners as we do on the green coffee we buy.

Last week, Starbucks reported better-than-expected quarterly profits as it began reaping rewards from slashing costs and closing stores.

We are encouraged by the progress we're making in our business during a time of economic challenge and change in our business, Schultz said.

As a result, the company has decided to make the discretionary 401(k) match payments for 2009 and to fund merit increases for some workers.

The coffee chain warned employees late last year that it would not guarantee making those contributions for 2009, and that it was switching to a fully discretionary match program from a fixed employer match.

It's no secret, however, that health care costs in the U.S. continue to increase significantly, making it difficult for companies to sustain the health coverage they offer employees. Starbucks is not immune to these increases, Schultz said.

Next year the company's most economical, basic health plan will be available for $20 a paycheck, up from $12.50 per paycheck currently, a spokeswoman said.

Given the rising costs, employees will generally see higher increases to their health care contributions than in recent years, Schultz said.

Starbucks said there will be no changes made to health care coverage eligibility requirements, which are more generous than those of other major retailers.

Starbucks shares edged down 3 cent to $17.19 late Monday afternoon on Nasdaq.

(Reporting by Lisa Baertlein; Editing by Maureen Bavdek and Richard Chang)

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