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Losey: 401k Match Suspended

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Question: My company recently sent out a memo saying they were going to suspend their matching 401k contributions for the rest of 2009 and maybe 2010 as well.

This could dramatically affect my ability to retire.

Are they allowed to do this? Christine, New York, NY

Answer: Christine, each company has their own 401k plan document which contains its own set of rules that normally allow for the suspension, reduction, increase or termination of matching contributions. Companies include this clause to protect themselves from having to make contributions when profits are slim and to reward employees when profits are abundant.

In late 2008 and early 2009, some companies, like yours, have either reduced or suspended their 401k matching contributions. Major industries being affected now include auto, health care, newspaper, gaming, and construction - but many more are considering.

The upside of this cutback/reduction, if you can call it that, is that the alternative was most likely an employee layoff so people are staying employed when their companies cut back on their fringe benefits. So be thankful you have a job.

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The downside of this cutback/reduction to you and your coworkers is the potential loss of many years of tax-deferred compounding and growth on the contribution the company would have made. This could be the equivalent of tens of thousands or hundreds of thousands of dollars over 1-2 decades.

Let’s hope your company can reinstate the company match in 2010. In the meantime, consider saving a higher percentage of your salary (if possible) or invest more aggressively to offset this reduction/decline. If you’re getting a raise this year, consider putting that raise directly into your 401k rather than your pocket.

Bill’s Bottom-line: Don’t count on your company or the government to take care of you in retirement.

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Bill Losey, CFP®, America's Retirement Strategist®, coaches women and couples nationwide with their retirement planning and investment portfolios. Bill is the author of Retire in a Weekend! The Baby Boomer’s Guide to Making Work Optional and he also publishes Retirement Intelligence®, a free weekly award-winning newsletter.
You can learn more at www.MyRetirementSuccess.com.