Ask Money

No more 401(k) match

Chris Farrell Dec 9, 2008

Question: Can a company that has been contributing matching funds on a 401K plan created by the company, suddenly stop contributing claiming economic conditions? Bert, Chatsworth, CA

Answer: Yes, a company can cancel its match. There’s no legal requirement that companies offer a match, and firms are free to reduce it, suspend it or even eliminate it at any time. For instance, at the beginning of November the troubled automaker General Motors suspended its match into the company’s 401(k). Other companies have followed suit. Right now, many people are getting hit by a double whammy with their retirement savings plan. First, their portfolios are in the tank thanks to the 40% decline in the stock market from last year’s peak, and now they’re losing the match, which is the real financial benefit of a 401(k), 403(b), and other so-called defined contribution savings plans.

That said, very few companies have eliminated the match. What’s more, looking at the list of companies that cut down or suspended their match during the 2000-2001 recession nearly all of them resumed payments once economic conditions improved.

You should still continue saving for retirement in your 401(k) plan even if your company does stop contributing to it. A 401(k) plan is still an easy way to save for the long haul and it’s a tax advantaged way to salt away money for later in life.

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