401(k) matching is a wonderful perk — who would ever turn down free money? These days, the answer seems to be ‘a lot of people.’ With the financial difficulties many people are facing, a lot of people have stopped contributing to their 401(k) plan. I can’t say that the choice doesn’t make sense: paying your bills today certainly makes more sense than going broke now in hopes of saving for retirement.
But if you can take advantage of a 401(k) matching program from your employer, I’d recommend doing it. Many companies are looking for places to cut costs and that free money is going to disappear quite quickly. Not every employer is looking at cutting 401(k) matching in the near future, but a few have already started. General Motors is just one example of a struggling company which has announced plans to temporarily stop matching contributions for its 32,000 eligible workers — although it seems quite possible that ‘temporary’ may turn into ‘permanent.’
For a lot of employees, a cut or suspension of your 401(k) matching benefit amounts to an unofficial pay cut. While not everyone contributes faithfully to their 401(k) plans, many companies offer it as a key component of their employee compensation plan. It’s definitely not something most employees want to see cut. With the current economic situation, I don’t think that all companies will feel the need to suspend any employee benefits programs but some — like GM — are going to cut everything they can think of, just to hold on a little longer.
If your employer announces plans to reduce or suspend 401(k) matching, the crucial question is when — you can often make a few more contributions before your window of opportunity closes. If that’s the situation, do whatever you can to contribute up to the matching point to your plan. Through the rest of the year, the upper limit for contributing to your 401(k) account is $15,500. In 2009, that number will rise by $1,000. If you’re 50 or over, you can currently contribute an additional $5,000 — and in 2009, that number will go up to $5,500.
When I say anything, I do mean it. You’re in a place where you have bills to worry about, but if making your full contribution to your 401(k) means taking on a second job, it’s likely to be worth it. It’s hard to picture just how crucial your 401(k) will be after your retirement, but a few contributions now may make a major difference after compound interest does its job.
The decision to suspend 401(k) plans is a good indicator that a company is struggling. While I wouldn’t go so far as to say that a company that feels forced to cut employee benefits is probably going to move on to something more drastic, it might not be a bad a idea to brush up your resume if you get word of some changes to your employer’s 401(k) plan. Even if you don’t need to worry about layoffs, it may be worth considering your options.
