Here are things to consider if your company is cutting your 401(k) match
The economic upheaval witnessed in 2020 could shake up things even more when it comes to 401(k) plans.
A small group of employers, including many in hard-hit industries such as retailing, already have ratcheted down or eliminated some matching 401(k) contributions for employees during the latest recession.
We saw these type of 401(k) adjustments during the Great Recession that ran from
Freezing the match during rough times
When will the matching money return?
The company did not say when it would reinstate the 401(k) match, though it anticipates doing so when business conditions permit, said
Other employers have made similar moves.
As the pandemic zapped travel plans,
About 12% of 816 employers surveyed by
What's perhaps more telling: Another 23% are either planning to or considering making similar moves sometime this year.
Cuts could be temporary
Some of these moves, fortunately, may only be temporary at some companies.
However, according to Fidelity, 55% of the employers that reported limiting or cutting the match said they have active plans to reinstate the match in the future.
More: How to break into your retirement piggy bank in the crisis
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To be sure, many employers, including
Overall, the trend isn't to cut matching contributions, even though some in the industry are reporting the freezing of 401(k) matches here and there, according to
"They are cutting back on employee benefits only as a last resort," Stinnett said.
Vanguard has been focusing on an effort to provide more low-cost advice programs, such as its new Digital Advisor product, as part of 401(k) plans. The automated service addresses helping younger consumers and others tackle a variety of financial planning challenges.
Given the expected volatility ahead on
Rethinking your contribution
Many times, it makes perfect sense to contribute enough money into your 401(k) plan to capture every matching dollar offered by the company. Not surprisingly, people tend to save more when there's an incentive.
And it could make a good deal of sense to continue saving money in your 401(k) plan even without matching contributions. You're still getting a tax break upfront for traditional contributions as you're able to set aside part of your pay before federal and state income taxes are withheld.
But if you're dealing with high-cost credit card debt or mounting student loans, you might be better able to use some money you would have set aside for retirement savings toward paying down debt now, if you're no longer getting a company match.
Basic budgeting may require you to make some adjustments, too, if you're facing a pay cut or a temporary layoff or furlough.
"If your income is going down at the same time you’re losing your match, you may want to re-evaluate your contribution,"
In general, though, she says contributing to a 401(k) remains a solid way to save for retirement.
"The loss of a match only increases the need for maintaining or growing your personal savings rate," Joy said.
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