Your 401k match may be under threat: Here is your solution


When companies try to cut costs in the midst of the coronavirus pandemic, many of them have or may soon cease to match 401(k) contributions from their employees.

That can make it harder for you to keep your savings on track.

During the 2008-09 financial crisis, nearly 1 in 5 employers who provided a 401(k) program allocation pulled their contributions back.

Many analysts predict the latest recession to be much brutaler, and several businesses have already turned the spigot off into nest eggs for their workers.

That your company match is on the chopping block may be debated by someone in the human resources department. There could be other ways of finding out, too.

“This is the kind of information that would be released to analysts in an earnings conference call if your employer is traded publicly,” said Rebalance co-founder and managing director Scott Puritz, who helps clients with 401(k) roll-outs.

Smoke sometimes doesn’t cause a fire. “During the 2008 recession, several businesses warned that they would stop or terminate playing, and instead did not,” Puritz said.

“Nevertheless it is difficult to foresee what will happen next in terms of the potential economic effects of the pandemic.”

Below are two steps which will help prepare you.


1. Save more now

If you are not saving enough to get the whole company match right now, you may want to start doing so, said Arielle O’Shea, NerdWallet’s investment and retirement specialist.

“Exploit the match while you’ve got it,” O’Shea said.

When you’re already meeting the match, there’s not much you can do, because most employers allocate their matches by pay period,

Vanguard Investment Strategy Group senior research analyst Jean Young says. In other terms, just 6 per cent of one paycheck matched at a time will you get, say.

But some companies are holding annual matches, which means that you could potentially produce a higher client payout if you upped your contributions.

“Talk to your human resources team before filling your 401(k) at the end,” Puritz said.

That way, if you can when we’re in a decline you can consider upping your own contributions. So Young said, “You should ‘buy on sale,’ and take advantage of a rebound in the economy.”

2. Review your plan

If your employer stops contributing to your 401(k ) plan, experts say you might want to start saving on an individual pension account instead.

“The quality of the plan is one factor,” said Barbara Roper, director of investor protection at the American Consumer Federation.

For instance, several smaller 401(k) plans are “filled with inferior, high-cost options,” said Roper. What you want: low fee retirement account.

Do you wonder what qualifies as a low fee? Plans usually charge from 0.1 per cent and 3 per cent of your annual assets anywhere. Ideally, you want to pay closer to 0.1 percent somewhere.

If not, Roper said, “In an individual retirement plan, you would be better off saving for retirement.”

Nevertheless, the government limits how much you can invest in an IRA, and even if you can afford to put away more money, “you’ll want to do more in a 401(k) because the tax benefits are still strong and the contribution limit is higher,” O’Shea said.

Komolafe Timileyin is a passionate entrepreneur that loves to solve entrepreneurial issues. He is also a blogger and an upcoming Engineer.

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