Cash-strapped companies are looking for ways to reduce expenses and unfortunately, many of them are either cutting or getting rid of their 401(k) match incentive. According to an article written by Mary Williams Walsh and Tara Siegel Bernard of the NY Times, companies such as FedEx, Eastman Kodak, Motorola, General Motors, and Resorts International have cut or froze their matching contributions since September. Specifically, companies in the auto-industry, health care, newspaper, resorts, and casinos are most at-risk to cut not only their retirement, but all benefits.
Even though the reduction of matching contributions will greatly affect the long-term growth of retirement plans, surveys has shown little change in employee contributions. Janet Kidd Stewart’s article in the Chicago Tribune states that “contributions rates to 401(k) plans dropped by less than half of 1 percentage point” in 2008. Walsh and Siegel’s article goes a step further saying, “study after study has shown that employee procrastinate when it comes to retirement plan chores, and in this case the inertia may work, unwittingly, in their favor”. However, this only applies to people who are currently in the workforce. New employees might feel less of a need to start contributing to a 401(k) plan without a match, which will stunt retirement plan growth. In the end, even if employees are still contributing, the lessening of employer match contributions will greatly affect the long-term savings of retirement plans.
Although companies are cutting the 401(k) matching contributions, they still need to be involved in promoting participation. Employers should still conduct retirement employee educational meetings to show the workforce the benefits of retirement plans even in this troubling economy. Teaching topics such as tax deduction benefits, dollar-cost-averaging, and asset diversification can help employees understand the importance of saving for retirement, in spite of 401(k) matching cuts. Employers, even if they are cutting benefits, must continue to have clear communications with their employees at all times.
For more information please visit the following sites:
http://www.chicagotribune.com/business/yourmoney/chi-ym-journey-0111jan11,0,3226434.story
http://www.nytimes.com/2008/12/21/your-money/401ks-and-similar-plans/21retire.html
Recent Comments