Even in the midst of record job losses as a result of the coronavirus pandemic, many people are fortunate to still have access to a 401(k) program through their employer.
But for some businesses, things have changed — at least temporarily — in the way they go about offering the retirement program. While some companies are resorting to slashing payroll in an effort to save jobs, others are altering the way they administer 401(k) contributions for employees.
According to a recent report from the Wall Street Journal, companies like Amtrak, La-Z-Boy and Mattress Firm have already enacted changes that will either reduce or eliminate employer matches to their employees’ 401(k) contributions.
Marriott International, one of the largest hotel and hospitality companies in the world, also announced that it would defer matches owed in March until at least September, according to the paper.
Ask Clark: What Should I Do if My Company Stops Matching 401(k) Contributions?
With the possibility of this emerging business practice hitting home for some of our readers and listeners during the COVID-19 outbreak, Team Clark sought the advice of money expert Clark Howard.
Why Are Companies Doing This?
Clark says it’s pretty simple. It’s not that the employers want to go back on their word. These companies are going into survival mode during the coronavirus pandemic.
“They’re doing this because as business has dried up for so many industries, companies are holding onto every penny of cash that they can,” Clark explained.
This effort to maintain liquidity could help save jobs in the short term. And, in some cases, holding onto the money that would’ve been allocated to 401(k) contribution matches could be the difference in keeping the business open vs. shuttered during these uncertain economic times.
What Should You Do if This Happens to You?
If Your Employment is Secure
Clark does not want you to panic and make drastic changes to your retirement strategy if you’re still confident in your long-term employment status.
“If your job is one that you feel overwhelming is secure, please do not discontinue your 401(k). Keep those contributions coming in.”
Clark believes that even though the match will be gone temporarily, you’ll still come out ahead in the long run due to a buying opportunity in the financial markets.
“With the declines in the stock market that have occurred — and likely we could have quite a bit more decline — the effect for you if you continue to contribute to your 401(k) each pay period as share prices decline will ultimately make you a lot more money later.”
In other words, the more shares you accumulate at a lower price, the more chance you see an overall rise in your retirement portfolio’s value in the long term.
If Your Employment is Not Secure
If you’re unsure of your employment status and don’t have an emergency fund built up, you may be best served to redirect the funds that you would have otherwise invested into the 401(k) to building a nest egg instead.
Having access to this money without having to pay any penalties could prove to be useful if your employment situation changes.
During this time of global crisis, Clark has acknowledged that atypical measures may need to be taken. That includes some moves that would perhaps go against his regular financial advice.
Clark has suggested that you consider adding credit in the form of a 0% APR credit card, for example, as a way to expand access to funds to weather this financial storm.
But if the situation is even more dire, he recently covered the federal government’s new modified policies to access the funds via a hardship withdrawal provision for 401(k) accounts.
“It is incredibly unusual. If you’re completely tapped out and need money to live on, you can withdraw up to $100,000 from your 401(k). You pay no 10% penalty, which would normally be the case. And the tax that you owe is spread over three years… Only do this if you’ve got to have the money.”
Clark said that while it is unsure how the government will handle this administratively, they’re also offering the ability to put the money back into your retirement savings once things stabilize:
“Let me tell you the craziest thing: If you pull your money out and then your life stabilizes financially, the government is giving you the ability to redeposit the money into your account and not be subject to tax.”
To reiterate, only take these extreme measures with your retirement account if your financial situation has become so dire that there are no viable alternatives.