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Tags: finance, ira, cutting corporate 401k matching contributions
 I had a little get together with friends at my home last Sunday. It was nothing major—a few short ribs on the grill, roasted vegetables, chilled Riesling, and of course the closest group of friends one can ever have this side of the planet. The typical conversation focused on President Obama’s performance, the state of the economy, and sports.
It was at this time that my close friend and next door neighbor Lawrence bought up a very troubling piece of information. As a belt tightening measure due in part to the state of the economy, the company where he works as an executive officer was planning on cutting matching contributions to their employee 401k retirement plans.
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Unfortunately, while it was still a shock to hear this close to home, it was somewhat expected. After all this has been a typical corporate response during times of economic turmoil. In the past, when the economy went on a decline, companies have been very quick in cutting corporate 401k matching contributions.
While it may not be the greatest retirement vehicle out there, and definitely not a pension, a matching contribution into a 401k account is the only retirement plan most employees may ever have. And now even that retirement haven is in jeopardy. A recently published survey of senior finance and HR executives by CFO Research Services for Charles Schwab Corp.
shows that over a quarter of employers in the county have already cut or are planning to cut their matching contributions to these 401k retirement plans. At the same time they are also limiting enrollment in these plans instead of opening it up to all employees. And the thing is, according to the survey, 87% percent of those polled said that the most important feature of their company’s 401k plan was the company matching.
By eliminating this as well as limiting entry into these retirement plans, companies are hitting their employees with another whammy at a time when these employees are their most vulnerable. 63 percent of those HR and Finance executives said employee concerns over personal finances were the major reason in the creation of a more difficult work environment in their respective companies.
Suspending the match will not help. This is because any suspension of the matching funds for the 401k contributions will result in employees either cutting their own contributions to the fund or even stopping it altogether resulting in a loss of thousands of dollars on their retirement savings—it just goes to show how much of an impact matching has on employee participation.
However, from my perspective, just because you’re not getting any matching on your 401k contribution doesn’t mean you should stop adding to this plan. You’re still going to be retiring in the future and stopping your own contribution, even for just a short while, could cost you thousands in future retirement funds.
It is still one of the best retirement vehicles out there—you not only get the tax deferment but you also get to put away more annually as compared to an IRA. At the same time you get the convenience of your contributions being taken directly out of your pay so you don’t have to worry about it.
Many analysts see this matching suspension as a temporary thing, with companies putting back full matching once the economy betters itself. If you can afford to I recommend you putting more into your 401k plan so as to make up the part your company used to put in. Look, if you put money on an IRA you do it on your own, so there’s no difference now—just do the same with the 401k.
Ultimately it is still your retirement savings to lose. And with our economy the way it is you now have more responsibility for your own future when you eventually retire.
About the author
The author of this article Rick Goldfeller is a successful underground Financial Analyst who has been advising and coaching individuals for many years. Rick recently published a book on how to manage your money and attract Wealth and Financial Freedom. More info on his Finance Planning course is available HERE.
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