Posted November 14, 2008
Question
"My company is cutting its match to my 401(k) plan. What should I do?"
Answer
Like everything else in financial planning, the answer to that
question depends on many factors. FPA member Stacy L. Schaus,
CFP®, senior vice president of PIMCO's defined
contribution practice, says to evaluate what effect the
reduced match will have on your retirement plan. How likely is it
that your 401(k) plan will — given a lower or, worse
yet, an eliminated match — meet your retirement
income needs?
"They will need to look at other sources of retirement income such as a traditional pension, and determine how much they need to save overall," said Schaus. "Depending on their situation and outlook for taxes, they may be best off saving additional funds beyond the match in a Roth 401(k) plan or a Roth IRA plan, if they qualify."
If there's a chance that a reduced or eliminated match will adversely affect your retirement income plan, there are several other tactics worth considering, including altering your asset allocation or working longer. "Unfortunately, most Americans will need to save more given a reduction in match," said Schaus.
Roughly three out of four companies that have a 401(k) plan offer an employer match, according to a recent PLANSPONSOR magazine survey. And company contributions average 4.4 percent of payroll, according to a recent survey conducted by Profit Sharing/401(k)Council of America. For those who do have a match, reduced or not, Schaus suggested "contributing at least to the match."
For his part, FPA member Martin Siesta, CFP®, a principal at Compass Wealth Management, says it's important to use these sorts of "life events" to re-examine one's financial plan, including job security, emergency cash funds, liabilities such as credit card debt and adjustable rate loans, and health insurance. A company that cuts its employer match might also reduce contributions to a health plan, for instance. But, ultimately, if one's job isn't safe, then a reduced employer match is the biggest problem a person might have.
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