Suspending matching contributions has ended up being rather of a recession tradition.
To save money, some employers are suspending contributions to their employees’ 401( k) accounts. And if this slump plays out like previous economic crises, more will follow.
The handful of companies announcing suspensions in current weeks include travel companies and sellers struck initially and hardest by diminishing consumer demand, including Amtrak, Marriott Vacations Worldwide.
the travel company Sabre, Macy’s.
Bassett Furnishings Industries.
Haverty Furniture Cos
. United States: HVT,
Tenet Health Care.
United States: THC
Employees, not surprisingly, are dissatisfied with these moves.
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Employers are required to provide their workers a 30- day notification and can not stop the match prior to the 30- day duration.
Suspending matching contributions has actually ended up being somewhat of an economic crisis tradition. In the months following the September 2008 market crash, more than 200 major companies hurried to do so, according to the Center for Retirement Research Study. The companies’ main monetary motivation was relieving an instant cash-flow restraint– not an issue about revenues– the scientists discovered.
But cutting 401( k) contributions may be a little cost to pay for reducing layoffs, stated Megan Gorman, a handling partner with Chequers Financial Management in San Francisco.
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Amy Reynolds, a partner at Mercer Consulting, stated the bigger danger for workers’ future retirement security is tapping their 401( k) s to pay their regular expenses in a difficult economy. As part of the rescue plan Congress passed in March, employees can withdraw approximately $100,000 without paying the 10% penalty normally troubled 401( k) withdrawals by people under 59 1/2.
” We want them to be thoughtful and consider other sources prior to they get to that,” Reynolds said.
She stated matching contribution suspensions are frequently short-term and are renewed as things get back to regular. That’s what happened in 2010, when business slowly brought back all or part of their contributions as the economy recuperated.
Employers use 401( k) matches to hire and maintain talented workers, and Reynolds kept in mind that suspending contributions isn’t something they wish to do. One thing differentiating this economic slump from previous recessions, she said, is that some companies are sharing the pain by cutting top executives’ compensation at the exact same time.
Marriott Vacations announced it would cut executive incomes by 50%, and Sabre is minimizing its CEO’s base pay by 25%.
” We are seeing this go-around trying to lessen the layoffs as much as possible and executives permitting themselves to be affected more,” Reynolds stated.
This column initially appeared on Squared Away, a blog covering monetary habits, psychology and the U.S. cash culture. It was published with authorization
Kimberly Blanton is an experienced monetary and economics reporter. She is the lead author of Squared Away, which is supported by the Center for Retirement Research at Boston College. Follow Squared Away on Twitter @SquaredAwayBC.