Edited for brevity and clarity by Gleba & Associates. Originally written by Susan Tompor, Detroit Free Press, June 17, 2020.
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 retail, already have ratcheted down or eliminated some matching 401(k) contributions for employees during the latest recession.
Monroe-based La-Z-Boy, for example, announced in late March that it would freeze its 401(k) match. Fiat Chrysler Automobiles trimmed some benefits in a cost-cutting measure, too.
Other employers have made similar moves.
About 12% of 816 employers surveyed by Willis Towers Watson, had cut their matching contributions to retirement plans as of the week of April 20 when the survey was done. All the respondents employ 12 million people.
Cuts could be temporary
Some of these moves, fortunately, may only be temporary at some companies.
Fidelity Investments held a client webinar June 4 and discovered that 9.6% of the 302 participating employers reported that they have reduced or suspended the match.
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.
Many employers, including Ford Motor, have not suspended the 401(k) match that they currently offer.
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. Basic budgeting may require you to make some adjustments, too, if you’re facing a pay cut or a temporary layoff or furlough.
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.