Posted on 11/13/2008 5:48:27 AM PST by Libloather
401(k)s: Employer Contributions Get the Ax
By Amy Feldman – 30 mins ago
When times are tough, companies find cost savings wherever they can. Now some employers are doing away with the 401(k) match, a benefit once considered almost sacred.
**SNIP**
Lesser of Two Evils
The psychological impact of these cuts may be almost as damaging as the financial harm. Coming at a time when many Americans are struggling to save for retirement and face shrunken stock portfolios, the cutbacks make the goal of a secure retirement even more elusive. Yet for all the unhappiness over slashed 401(k)s, employees understand the alternative of increased layoffs may be worse, says Robyn Credico, Watson Wyatt's national director of defined-contribution plans. In general, they "would rather have their jobs and a reduced match."
**SNIP**
New-Employee Enrollment Could Drop
**SNIP**
What does this trend signify for employee savings behavior? Academic studies show that the existence of a 401(k) match increases contribution rates among employees, but the research doesn't address what happens when a match is cut. Brigitte Madrian, a professor of public policy and corporate management at Harvard University, has studied 401(k) design and behavior. She thinks the end result will be a "small fall" in 401(k) participation as fewer new employees sign up and existing employees stick with the status quo, neither pulling money out of the plan nor adding to contributions. Says Madrian: "You will find the biggest effect on new employees walking in the door. Employees who were already signed on for the plan aren't going to drop out because there's not a match."
(Excerpt) Read more at news.yahoo.com ...
I would rather exchange the benefits for a bigger paycheck anyways. I would much prefer to go out and deal with my retirement and medical coverage needs independent of my company and government.
BS! So a company does not make matching contributions for 18 months because of a bad economy. That might cost an employee $6K in contributions. If somebody's future retirement depends on a $6K contribution today, then that person is not doing enough for his own retirement.
This is another one of those "oh woe is us" articles that the media loves to whip us up in a frenzy.
Good man. I’ve felt the same way my entire adult life.
Most employers use 5 year vesting on their contributions anyway, so I takes awhile to actually “own” that money anyway. It often takes 6 months or a year just to get into the plan after starting a new job. But once you have it, it is portable wealth, independent of government. No wonder the current congress hates them.
What is disappointing it the large number of people who opt out of these accounts regardless, apparently figuring the government will care for them when their older.
The purpose here is to convince us that Obama's plan to eliminate the 401k tax deduction in favor of an expanded government retirement program is a wonderful idea. See these nasty employers can just take it away from you whenever they want. Never mind that the government can too.
“If I knew for a certainty that a man was coming to my house with the conscious design of doing me good, I should run for my life ...”
“There are a thousand hacking at the branches of evil to one who is striking at the root, and it may be that he who bestows the largest amount of time and money on the needy is doing the most by his mode of life to produce that misery which he strives in vain to relieve. ... Do not ... be an overseer of the poor, but endeavor to become one of the worthies of the world.” - Henry David Thoreau
I want employees who are working to better themselves and interested in their own improvement. If I wanted to run an adoption agency, I would...
“What is disappointing it the large number of people who opt out of these accounts regardless, apparently figuring the government will care for them when their older.”
I wonder if Enron employees feel that way. I totally lost confidence in companies that contribute to a employees 401k in terms of company stock.
While senior managers and execs can cash in their options or pull out, the average worker has to sit there and watch their entire portfolio sink and there isn’t a thing they can do about it.
I would change that so everyone is in the same boat. Then execs and board members will do what they are supposed to do instead of pillaging the company then moving on.
In the meantime, the public sector pension plans are underfunded by hundreds of billions of dollars in many states and cities. In order to make up the losses, taxes will be increased in order to protect the value of the public sector defined benefit pension plans, which virtually no one in the private sector gets anymore. Except (maybe) GM employees.... ;-)
So, while our 401Ks and IRAs shrink, and our house values decline, we can look forward to paying higher state and local taxes to make up for the public pension funds’ market losses.
This is a 'teachable moment'. Everyone should be confronted with the fact that the government is aiming to confiscate what you have scrimped and saved for and replace it with a grossly inferior substitute. And it is being done to fund wealth transfer programs to those who will not work or will not plan for their own retirements.
This country is quickly approaching a great reckoning and it will not be pleasant.
I won’t be losing much on my 401k match. I’m a peon in a very big company. I’ve been there almost 30 years and my company “match” is only $450 a year. It won’t make or break me.
If it comes to losing your job,or temporarily losing your matching 401k contributions,which would you prefer?Of course,you’d prefer keeping your job.That’s what is on the line here.
You are correct in your analysis.
We’ve never had a match from our employers on 401k benefits, but we still fund them, the reason, there is tax advantage. Same with medical insurance costs paid through the employer, you do save money on taxes.
Since about the bailout time, my husband’s company has laid off about 4 employees and has stopped the matching 401(k). Business is slowing and they are just trying to keep afloat.
It’s not a big business, but privately owned and has been in the family for 3 generations.
That's your choice, but the attractiveness of the 401(k) is that your contributions to one reduce your taxable income, up to the stated maximum amounts. Sure, you'll pay tax upon withdrawl, but you have the advantage of having more pre-tax dollars working for you, sooner.
That's one of the real advantages of the 401(k). Whether or not an employer matches is beside the point.
This whole "employers don't match anymore" story is throwing the baby out with the bath water.
***What is disappointing it the large number of people who opt out of these accounts regardless, apparently figuring the government will care for them when their older.***
Wait until they find out that the Emperor’s plan is to have the companies deduct money from the employee’s paycheck and put it into a GOVERNMENT program for their retirement. Just like S.S., which, of course, has never been set aside for the recipients but goes into a common pool for Congress to spend.
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