Is your 401(k) match on the chopping block?
Posted
Nov 20 2008, 08:21 PM
by
Karen Datko
Rating:
It's bad enough that your retirement funds are shrinking at a disturbing rate. Now some employers have stopped matching employee contributions to 401(k)s, and Nickel at Five Cent Nickel suspects more companies in struggling industries will follow their lead.
General Motors, Ford, Frontier Airlines and several other large companies have suspended 401(k) matches, and The Wall Street Journal reports that a growing number of small business are also put matching on hold.
Nickel writes: "Imagine how you'd respond if you received a memo saying that you've been targeted for a salary reduction. A cut in retirement benefits should be interpreted in exactly the same way."
The Associated Press explains it this way: "For millions of workers, the matching contribution is a critical part of retirement plans. The real impact isn't from the loss of the match but rather the lost opportunity to benefit from the compounding of interest on that money over time." (Companies generally match 50% of an employee's contribution up to 6% of the employee's annual salary.)
It's difficult to know how widespread this will become. In 2001-2003, numerous companies suspended contributions but reinstated them when the economy improved. U.S. News & World Report says a recent survey showed that 2% of companies have reduced their matches this year, and another 4% plan to make that move in the next 12 months.
Pamela Hess, director of retirement research at Hewitt Associates, told BusinessWeek, "It depends how long this goes on. In another year, you could have another 3% to 5%, or you could have 10%."
Should you increase your contribution if your employer puts the 401(k) match on hold? That depends on the state of your emergency fund. If it's small or you don't have one, Frank Boucher of Boucher Financial Planning Services suggested in an interview with CNN, you should probably contribute to retirement accounts at your normal rate and save extra money as a cushion in case you get laid off.
