Employers in industries across the board are taking measures to save money during this economic downturn. One action that’s growing in popularity, including in Wisconsin, is employers suspending their 401(k) match contributions. WUWM’s LaToya Dennis has this story.
Paul Fischer says during this recession, more and more employers are willing to implement measures seen as controversial. The UW-Milwaukee accounting professor says it’s all about finding…
“A direct cash savings,” Fischer says.
That’s why Fischer isn’t surprised that a number of companies, both nationwide and in Milwaukee, are suspending their retirement match funds. Until now, those firms have contributed to employees’ retirement accounts, often matching a percentage of what the worker contributes. Rockwell Automation and one of the state’s largest health care providers, Aurora, acknowledge ending their respective matches, for the time being. Fischer says it’s hard for employees to complain because they still have jobs.
“It has the same effect as cutting your salary but it isn’t as obnoxious to the employees as directly cutting your salary, but that’s what it amounts to,” Fischer says.
Fischer says the amount a company is able to save depends on its level of match and how many workers take advantage of the benefit. Mike Arnow is director of Financial Planning for Sattell, Johnson, Appel Financial Advisory. He says the first question that usually comes to mind for employees losing their match is, why should they continue to fund the account? According to Arnow, the best thing to do is to keep putting money into your work-sponsored retirement fund, because you’ll still get a tax break.
“You know when you put money in your 401 (k) or 403 (b) plan that your taxes go down. If you say, here, put a $100 away that’s out of your salary and so your taxes go down by a certain amount. If you’re in the 25 percent tax bracket, your tax bill just went down by 25 percent,” Arnow says.
Arnow says you should also keep in mind that the more you save now, the better off you’ll be later. He says that should be incentive enough to continue putting money into your 401(k), even if your employer doesn’t.
“LaToya Dennis puts away, at age 26, about 8 percent of her salary you will be able to be financially independent by age 62 or age 65. If you wait until you’re 35 years old, you’re going to need to save 15 percent of your income. If you wait until you’re 40 years old, you’re going to need to save 20 percent of your income. The earlier you start the less money you have to save because your money is earning money,” Arnow says.
Arnow says for those who fear the days of company matches are gone forever, you shouldn’t be.
“I think that as soon as the economy turns around there will be a lot of pressure put on companies to take care of the employees that have ridden out the bad times with them,” Arnow says.
Arnow predicts retirement matching funds will be one of the first things to return when the economy improves.
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