What to do if your employer stops matching your 401(k) contributions

The coronavirus crisis has dealt a devastating blow to many companies across the U.S.—for employees and employers alike. And as companies take stock of their options to cut costs, one avenue that has historically been on the chopping block is the 401(k) employer match.

Back in the 2008–09 financial crisis, roughly 18.5% of companies that offered a match either altered or suspended 401(k) matches, according to a 2009 report from the Plan Sponsor Council of America. Plenty of companies are already announcing 401(k) match changes, generally as part of a strategy to get through the downturn and minimize or avoid layoffs. However, according to Jean Young, a senior research associate with Vanguard Investment Strategy Group, more employers announced 401(k) match cuts or reductions in 2008–09 than actually implemented them, Young recently told Morningstar.

If your employer just cut your 401(k) match, here’s what experts say you should do.

Do the math

The first step some experts suggest you take is a pretty basic one: Do the math.

“Understand what this cut means. It’s starting with basic math: Figure out, ‘Okay, that match—how much was it actually?’ Sometimes we think in percentages but you don’t actually know what the dollar amount is,” Rhian Horgan, CEO and founder of retirement and financial planning platform Kindur, tells Fortune.

For example, if you make $50,000 a year and your employer matches 3% of your contributions, that’s $125 a month that you’ll be losing, Horgan notes. By calculating that amount in terms of dollars, she suggests it will be much easier to start building a plan that aligns with your retirement goals and can help you adjust your contribution rate.

Still, Dennis Notchick, a financial adviser based in San Diego, points out that the impact of cuts is going to hurt more if you’re closer to retirement than earlier in your career. “If you’re 25 or 30, you could sit there and crunch a calculator, but you’re 30 years out [from retirement],” he says. Making up the difference in contributions will likely be more important closer to retirement age.

Keep saving—in your 401(k) or elsewhere

Certainly, getting “free money” put into your 401(k) through an employer match is great. But at the end of the day, “it’s just an incentive for you to contribute your own dollars,” says Douglas Boneparth, president of Bone Fide Wealth in New York City. It’s likely employers will reinstate the 401(k) match eventually, and for those like Notchick, “Staying the course is important.”

However, your employer match (or lack thereof) “should have little bearing on the thought process about whether or not you can afford to save,” says Boneparth. That’s a key distinction: “Affording to save is different than simply getting a matching contribution,” he notes.

In hard times like these, many people may want to have access to liquidity—especially if they’re concerned about a cushion to fall back on if they lose their job or struggle paying rent.

Steadily contributing to your 401(k) should be important, but for Horgan, access to liquidity might be more important for younger retirement savers. And a 401(k), which you normally can’t access without a fee until you’re 59.5 years old, isn’t ideal for that.

“If you don’t already have a set of cash put aside that’s liquid, it may make sense for you to say, ‘I’m not going to contribute to the 401(k) for a little while, but I’m going to still save. I’m just gonna save in a different vehicle,’” notes Horgan. For some, the better option right now will be putting money into a savings account. “If you think there’s a chance you might lose your job, you might want to access the cash,” she says.

Revisiting your monthly budget and cash flow is “the biggest call to action right now that I can give anyone,” says Boneparth. From that vantage point, you can determine what changes you may need to make to your 401(k)—employer match or not.

Add to your contributions if possible

Knowing you’ll be missing that extra money each month could help you get creative in making it up: “Are there ways that you can look at your budget and find that savings, or a portion of it, to bridge that gap?” Horgan asks.

If you have a stable paycheck and are able to eke out savings from things like not going out to eat as much or not spending money on a gym membership, those savings could help make up some of the loss of your employer’s match—and could keep you on track for your retirement goals, says Horgan.

But more than making up the gap, one of the benefits of adding to your 401(k) contributions right now is the “buyer’s market” we’re in. With stocks having experienced hefty blows in recent months, many stocks are becoming cheaper. If it’s affordable, you can capitalize on market dips by “contributing more in the times when markets are lower” and buying up stocks cheap, says Boneparth. If you’ve got the wiggle room, “now’s the time to be opportunistic,” adds Notchick.

Pause contributions if you have to

Worst-case scenario, pausing contributing to your 401(k) is “100% okay,” argues Boneparth.

If the uncertainty of the economy or your job security is getting to you, “the first place you should go is to beefing up cash,” notes Boneparth. “It’s unfortunate that that might come at the expense of taking advantage of opportunities, meaning a lower market, but keep in mind: You can always back-end your contributions into your 401(k).” You can make “catch-up” contributions (putting additional funds) into your 401(k) if you’re 50 or older—plus, you don’t need to make IRA contributions until it’s time to file taxes in the next calendar year.

Think about an IRA

Some financial advisers note now might be a good time to look at an IRA, or an individual retirement account. If your 401(k) isn’t sweetened by the lure of a match, IRAs can generally present more flexibility: “If you’re in a 401(k), you’re stuck in a mutual fund, you’re stuck in an index. The positive to an IRA is you have more investment options,” Notchick points out. (Note that IRAs have different contribution limits than 401(k)s. For 2020, contributions for IRAs are capped at $6,000 a year—$7,000 if you’re 50 or older.)

Plus, if you’re under certain income limits (for 2020, anyone making more than $139,000 as an individual, or $206,000 for a married couple filing jointly), you may able to access a Roth IRA, meaning the contributions are taxed today and allowed to grow tax-free. If you’re at the start of your career, contributing to a Roth can help you down the line when you might be earning more and being taxed in a higher tax bracket. For those in their twenties and thirties, the Roth option is “probably the most powerful savings tool you have,” Horgan suggests.

Determine where you are in your retirement journey and plan accordingly

It’s common sense: Younger employees should plan differently than those close to retirement. That also holds when considering the hit an employer match cut might take to your retirement goals, experts say.

If you are later in your retirement planning journey, an employer match cut may prompt you to consider delaying retirement for a year or two to recoup the losses, or even adding some part-time income, Horgan says.

Notchick suggests if you are nearing that retirement age, it will be crucial to examine your budget and cash flow, and figure out where you can afford to save more in retirement or add extra contributions. “If you wanted to retire sooner, you’re going to have to pump more money into it because you’re losing that extra percentage that was from the company,” he says. A few hundred dollars less from your employer a month will likely have a bigger impact for someone who is 60 than someone who is 30.

But whether or not your employer just cut your 401(k) match, financial planners like Boneparth suggest it’s never a bad idea to revisit retirement goals.

“Most people don’t know what their retirement savings are able to do for them, so it’s always a good idea,” he says. However, “having said that, should you be so worried [about match cuts]? I want to say no, but it’s really going to depend on whether or not when the economy recovers, will that match come back?”

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