Almost 50 percent of employers cutting back 401(k) plans
Filed under: Retirement, Economy
About 23 percent of employers eliminated matching contributions to 401(k)s, and another quarter limited enrollment rather than open the retirement savings plans to all employees, according to a study conducted for Charles Schwab (SCHW) by CFO Research Services. The cuts started last September to save money as the economy headed south.Most companies do indicate that the cuts are temporary. "Most view that as a temporary step. They don't see that as a long-term approach," Steve Anderson, who heads Retirement Plan Services at Charles Schwab, told Reuters.
When people were asked to identify the most important feature of their 401(k), 87 percent of them said the company match was the key aspect of the plans, according to the Schwab study. The second most important aspect was the professional investment advice they got from the plan.
Just yesterday on the radio I heard a financial planner tell listeners that they should stop making contributions into their 401(k) and build a three-to six-month emergency savings as a cushion in these rough economic times. While that's good advice if you're in an industry in trouble, it's not good if you are in one of the more stable industries, such as health care.
I agree that having an emergency savings cushion is important, but cutting out all retirement savings isn't a good idea either. If you have no other extra funds to tap, then you may need to cut back on your retirement contributions to build that savings cushion, but don't stop contributions completely.
Remember the market will go up and down throughout you're working career. The best rule of thumb is to buy low and sell high. Unless you believe this market is headed back down to where it was during the Great Depression, it's a good time to find stocks in well-managed companies and buy them while they are on sale. Continuing regular contributions into a 401(k) makes sense even in bad times.
Schwab's online survey was conducted between March and April among executives at companies with revenues ranging from $100 million to more than $10 billion in a cross-section of industries. More than half of the respondents worked at companies with more than 1,000 employees eligible for their 401(k) plans.
Has your company cut back its 401(k) contribution or limited enrollment to the plan?
Lita Epstein has written 25 books including Working After Retirement for Dummies.
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Reader Comments (Page 1 of 2)
6-22-2009 @ 8:52AM
Tim Booras said...
Check out the refundingamerica.org idea. It needs to be done.
Reply
6-22-2009 @ 10:09AM
Chuck said...
America will be refunded when Republicans stop promoting the idea that America is the worldwide FREE mercenary police force.
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6-22-2009 @ 10:44AM
carol lowery said...
I was against Bush going into Iraq mostly because I knew the American People would not stand behind any long war. Why do Dems call Reps hawks? I remember Korea well, Truman's 3 yr was, 36,000 dead Americans and Ike got us out of that mess. I remember Nam very well with LBJ escalating that was that went on for 10 yrs and approx 58,000 dead. I remember Kent State and the Dem convention in Chicago. That's why the Dems couldn't get and keep the White House for a long time.
6-22-2009 @ 10:24AM
carol lowery said...
It has always been the honest, responsible, hardworking, tax paying citizen of this country who has received the shaft all the way around. As a senior citizen that did without a lot just to save for retirement, I can not touch my 401K because the Federal Government taxes up to 85% of my SS check. Your better off paying the tax as you earn it and just putting your money aside so you are not double taxed when you retire. And why do senior citizens have to add muni bond interest to their SS formula to see how much is taxable? I paid an effective rate of 27% on a 17,000 withdrawal from my 401K and I will not take out any more until I have to.
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6-22-2009 @ 10:32AM
meleagrid said...
Right Carol, thank you for the thought; people, save the money you make and invest with no one but yourself. If you saved 10 to 20 percent of your income per year, you made a profit. Pay yourself first by increasing personal savings accounts and you'll always have that money needed without penalty or added hefty taxes when you most need it.
6-22-2009 @ 11:17AM
joe said...
I don't know your age but you can freeze SS until you are age 70 and get a higher benefit Use you 401k and then take SS
6-22-2009 @ 10:45AM
Richard said...
Carol, good point about the tax hit when you withdraw. One solution if you put the money in a Roth IRA, which is not taxable when you withdraw it. It's probably too late for you now. I'm not old enough to get Social Security, so I don't know if the tax-free Roth withdrawal still counts as income for taxing SS payments. Since I'm currently in the lowest tax rate, I'm swithching some of my regular IRA into my Roth IRA every year. I have to pay the low tax on the transfer now, but won't have to pay when I withdraw it in the future when I expect taxes to be higher to pay for the big deficits, unless Congress changes the tax rules in the future.
6-22-2009 @ 10:38AM
John said...
Do you remember the excuses companies and Republicans gave when they ended company pensions? We will replace them with the matches on your 401K. Remember all the bs you heard on how much better the 401k was going to be? You better quit listening to the bought off politicians and the lying corporations that are buying them off. The same lies are being told on government healthcare. Why are the health care corporations so horrified of competition? Because right now they have who they need in congress bought off to do their bidding and keep them without any competition. I wish Americans could start thinking for themselves stop letting Rupert Murdock and Fox think for them.
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6-22-2009 @ 10:43AM
joe said...
Making contributions to a 401k with no match is a terrible investment option. 401k's have notoriously bad investment choices with high fees. Instead open a IRA and buy a good China mutual fund, some top dividend paying conservative stocks, write options against those stocks and use a finacial advisor!
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6-22-2009 @ 11:40AM
David said...
The 401k account was a con dreamed up by the likes of Goldman Sachs to get access to your money, literally steal it from you without any consequences. This will continue.
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6-22-2009 @ 11:49AM
Jean said...
pelosi and house dems met last October to discuss confiscation of your 401k. So perhaps to stop contributing to this fund isn't so bad. I've told my husband to stop as it's all going to go to obama. He has to find more money somewhere to fund all of his spending and this could be the place.
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6-22-2009 @ 12:45PM
lizc said...
MARKET IS GOING TO CRASH...EVERYBODY PULL YOUR MONEY OUT BEFORE IT'S TOO LATE..
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6-22-2009 @ 3:55PM
realist said...
Ever wonder why a financial advisor is a financial advisor? If they are so good, wouldn't you think they would have long ago stopped advising others and concentrated on making themselves a fortune?
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6-22-2009 @ 3:57PM
Tammy said...
This really started back 2006 I worked for a 401(k) recordkeeping company. Companies found the IRS & DOL regulations around the 401(k) very cumbersome and time consuming. Also they cap on what highly compensated employees could contribute wasn't much for the big dogs. If a plan was deemed top heavy those highly compenstate folks would have to take a distribution on those contributions and pay the taxes. In same cases the company would have to make a Safe Harbor contribution to the lesser compenstated employees to keep the plan in compliance with the regulations. No money maker for the big boys in the 401(k) business so why bother with it at all. Many companies were getting rid of their 401 (k) plans altogether.
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6-22-2009 @ 4:56PM
Actionhero said...
The facts are laid out as plain as day, and the line between the haves and the have nots is becomming wider. If your work is involved with government funding, you'll survive. If not, the government will fund you with unemployment. The value of the U.S. dollar is decreasing, the debt is increasing, production is down, taxes are up. Reorganization of the U.S. financial system is folly at this point. Obama tips his hand more and more everytime he speaks. Comparing yourself to the worst is what truely stupid people do to justify themselves. Listen to your president and tell me thats not what he's doing. Ask yourself, does he talk about financial success in any of his daily speeches? The banks aren't lending, Chrysler is toast, construction in the private sector doesn't exist. Typically american innovation in the private sector is resilliant and adjusts to the times. However, Obama has made it pointless to overcome the current market. Thats the thing all the local business owners talk about. They know it's just a matter of time before they shut there doors for good.
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6-22-2009 @ 7:28PM
wisdom said...
I have $853,000 in one of my 401k-and $67,054 in a checking account,and $12,000 in savings.Do you think i,am doing ok for a 34 year old male.
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6-22-2009 @ 9:37PM
Lizard said...
I know that you make a hell of a lot of money for not knowing how to put a question mark at the end of a sentence.
6-22-2009 @ 5:45PM
peapers said...
Actionhero - I wouldn't count on it.
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6-22-2009 @ 6:17PM
Chris said...
Labor forces are expendable. Always have been. There is no way that a company can afford to pay pensions to all of it's employees for the rest of their steadily-lengthening lives. They also are going to pay the very minimum they have to in benefits, including 401k matching. The smartest thing a company can do is support the Democrats in opening up the US to illegal immigrants. Basically slaves, they are cheap, efficient, and, again, disposable. Giving jobs to illegals, and cheap legal immigrants, from third-world nations, is the smartest thing American companies can do, so it surprises me that it is the Democrats, who are usually anti-Big Business, and not the Republicans, who support the illegals. Strange how times change.
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6-23-2009 @ 10:58PM
mike said...
i was putting money/no match/while it was still new and unknown to a lot of people, in 2 yrs when i turn 591/2 i stand to pull out almosta 1/3 million$ and no i wont lose it between now and then, i have yet to take a loss in the market,, just a average joe who THINKS
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