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Home » 401K, Workplace Finance

Is your 401k Match Being Cut? This May be your Hint to Find a New Job

Last updated by on 9 Comments

401k Match Cuts Becoming Popular

Recently GM, Ford, Frontier Airlines, and some other iconic companies announced that they were suspending matching 401k contributions. I find this to be a disturbing trend that I really hope does not catch on. 401k matches typically average just 3% of payroll expenses, yet many people are heavily dependent on them to fund their retirement at some point.

Employers Playing the Economy Card with their Employees 401k’s

It seems as through many companies are looking at the current economic slowdown as a means to cut back on essential employee benefits. Granted, Ford and GM are in a really tough pinch when it comes to cash and may not survive without bankruptcy, but I can foresee a number of companies following suit ‘because these are tough economic times’.

401k match cutIn GM and Ford’s case, they decided to cut 401k contributions before they decided to cut private corporate jets and other forms of lavish spending. Shame on them.

How Big of a Benefit are your Matching 401k Contributions?

To me, 401K matching contributions are the BIGGEST benefit, even beyond medical coverage. My employer offers a very healthy match that provides me much more of a cash benefit than any medical insurance plan. If my employer were to cut the match, I would seriously consider finding a new job. If a company is that desperate for additional cash flow, it’s probably time to look elsewhere.

In my humble opinion, if an employer is cutting back essential benefits like 401k matches they are either:

A. In a very tough financial situation.

B. Not valuing their employees and looking for excuses to cut costs.

Either way, it’s probably time to find greener pastures.

401k Match Discussion Topics:

  • Has your employer decided to cut back on your 401k match?
  • How much does your employer match?
  • Where does your 401k match rank amongst all of the benefits that you receive?
  • Do you think profitable companies are justified in cutting employee benefits during this economic downturn?

Take the Poll!

What Has Your Employer Cut Back On? (you may choose more than one)

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About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


9 Comments »
  • Clarissa says:

    No big cutbacks yet, just a lot of the smaller perks that were good morale boosters and didn’t have much other value. So long as they keep the big ones in play (401K, bonuses, health care, etc.), that is all I really care about.

  • D'oh says:

    My employer just announced the 401k match suspension yesterday. Eek! It was only a 50% match on the first 3% saved, but yeah, I’m bummed. The few coworkers I’ve discussed it with didn’t mind because they don’t do the 401k anyway, which kind of blew my mind.

  • stephanie says:

    I work in education, so I have great benefits. However, I would rather have higher pay and NO benefits, because I think that I can decide what would “benefit” me better than my employers can. I really appreciate all of the insurance, 403(b) match, etc., but I look at salary and benefits as a total package, and I would absolutely take a job with higher salary and less benefits, if it was more in line with my career goals. And I’m going to stop on that conversation there, because it is getting off topic for your post and I think I might write a blog post of my own about it. (:

    But to answer some of your direct questions –
    -My employer hasn’t cut back on any benefits, but they have essentially put a freeze on hiring. To my knowledge there have been few if any layoffs on campus. However, people who are of retirement age are being encouraged to retire, and any vacant positions (either already vacant or soon-to-be-vacant because of retirement) will not be filled.

    -My employer match is weird: employees contribute 6 percent of their salary, and the employer matches it with either about 9 percent or about 14 percent (9% geared toward employees who plan to be here less than 5 years, 14% to longer-term employees). There is no option of contributing less than 6%, and I don’t think you can contribute more through payroll deduction.

    -For me, the 403(b) match is one of the 2 useful benefits I have, even though I have excellent benefits all-around. The other useful one is being able to take 6 hours free each semester. I am very healthy, so I get minimal use from my health insurance. (And, hopefully, no use from the life insurance!) My job is such that I get university breaks off work instead of getting sick days and vacation days. Most other benefits also don’t really effect me.

    -In my opinion, employers are free to run their business in the ways they see fit. The main reason employers started offering benefits like health insurance is because there was a freeze on wages during WWII, and companies wanted to have other ways to attract employees. Before that, people used money from their salary to buy the things we now consider “benefits” that should be paid by the employer. Now that there is no longer a wage freeze, it makes little sense to me that employers should feel a need to offer significant benefits since they could just pay in cash instead – which would make book-keeping much easier for employers and give employees the option of buying the things they want, rather than having a defined benefits plan. However, if businesses decide to do this, it needs to be with this clear objective, rather than just slashing benefits here and there. I certainly understand why people are angry to find out that their benefits are being cut and they are not getting a cash-equivalent pay increase. If it bothers someone, they should find a new employer. However, if you can’t find another job, then you probably already have the best job around, with or without those other benefits.

    Sorry to take over your post with my comments, this is a subject I feel pretty passionately about!

  • G.E. Miller says:

    @ D’Oh – sorry to hear that. Like you said, at least it wasn’t much of a match to start with.

    @ Stephanie – I like long, thoughtful comments that add value to the discussion, so have no worries. You bring up some really good points. I think that companies offer benefits b/c a lot of people don’t take advantage of them. I work with a lot of people that don’t contribute anything to their 401K even though the match is pretty sweet. I don’t think employers should do away with 401K matching b/c it would take away the incentive to save and would cause huge poverty in retirement issues in this country (which will probably still happen with the elimination of pensions).

    Benefits often are used as a means to attract talent and carry more weight than their true expense – that’s why I think employers offer them. They also use them as leverage to appear more attractive to a potential candidate when they know they can’t compete on salary with other employers. It’s a differentiator. Otherwise they’d just pay everyone more – but the problem there is that would only cause higher inflation b/c everyone would be getting paid more (and then it wouldn’t really be ‘more’). If I had the option of benefits or cash, I’d take cash in a heartbeat, and most others would. Which is why I don’t think it would really benefit any of us and ultimately you’d have a lot of people still in debt with no way to pay for the benefits that they once had through their employers.

  • Andy says:

    Hate to be the money “hater” here but it seems pretty superficial to me to be advising people to leave their jobs if the 401K match gets cut.

    Gallup has done some real interesting survey work (1000’s of people across many diverse sectors) that shows that the happiest and most engaged employees don’t rate salary or any financial-related benefits as anywhere near the top 10 things that keep them at a job and, more importantly, happy at a job. Among their top 10 are things like: do I get regular chances to do what I do best, am I given everything I need to do my job well, am I regularly offered praise for something I’ve done at work, is someone regularly monitoring my professional growth–these are almost all manager-related as they found that a good, supportive manager made a HUGE difference in someone’s growth and happiness within their job.

    In fact, their research shows that people often stay at a lower-paying job that is similar work, but has the above-listed “softer” benefits that I listed above (usually because of a good manager), because they are ultimately happier and more engaged, and given better opportunities for growth.

    I see you using a 401k match as an indicator of whether an employer cares about you or not, but in my experience, it’s much more obvious from some of the things I listed above. You can have a 2 minute conversation with your manager to determine whether or not you are “valued”. And if you do feel valued by them, you’re one of the lucky ones (it’s unfortunately kind of rare), and I’d think twice before moving to another job where there is no guarantee of that.

    Just my 2 cents

    Gallup’s book is called “First Break All the Rules”, if anyone is interested–it’s a great book for managers.

    –Andy

  • G.E. Miller says:

    Hi Andy – I definitely see your point, and yes, the title to the post is a blanket ‘superficial’ statement, that was created to grab your attention and provoke some introspection.

    When your employer does away with your 401K it is a fairly big indicator of the company’s financial success. Look at the companies publicly doing so – Ford, GM, Frontier – all near bankruptcy. If not an indicator of financial success, then it reflects poorly on the employer’s relations with its employees.

    401K’s being cut may be the sign of worse things to come. Of course, everyone should examine their situation on a one-off basis, but it would be somewhat naive to get a manager’s elevator pitch and think everything is fine and dandy when the employer could be failing.

    Don’t just quit your job because I said benefit cuts may be an indicator of worse things to come!

  • Ethel says:

    Health benefits are definitely more important to me. I am the breadwinner for a family of 4. My employer match is worth $200 a month to me, maximum. If I didn’t have a 401(k), I would have a IRA of some sort instead and could easily pay for it myself.

    On the other hand, my company’s health care is easily worth $1,000 a month to me. If I lose that, my salary was effectively just cut by 15%.

    My company has a near-hiring freeze (but I know at least one person who was hired by them) and lower bonuses this year. Probably lower raises as well.

  • cost control in construction says:

    in this economy i don’t doubt anything right now. If one has a job of any sort right now then they need to hold on to it until economy gets better.

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