For the first time in just over a decade, we are hearing this question come up again as employers are tasked with the difficult decision of cutting costs to shore up corporate finances. As an employee, participants frequently default their savings rate to whatever the company will match. If the match disappears, what is one to do?
For a retirement plan to work, a participant needs to save at a sufficient rate throughout their career. For anyone who has worked at a start-up knows, matching isn’t provided by every employer. Does that mean they shouldn’t save in the first place? On the contrary, the burden of saving for retirement is shifted from the employer/employee solely to the employee. An employee has to evaluate this when they are looking at a job opportunity and factor that into their total compensation.
When I worked for a start-up (a long time ago), there was a 401K but there was no match. I had to look at that in my overall compensation and decided that the opportunity of working for a start up and receiving higher pay offset the lack of a match. I fully participated in the 401K.
If you are working at a company that is trying to stave off lay-offs, the executive decision to forgo matching may very well have maintained your job. We have also experienced over time that companies in this position try to re-initiate the match as soon as the firm gets back to a financially stable place.
So back to the original question, should you quit participating in the plan? Assuming you are confident your job is going to be maintained and you already have emergency cash reserves saved, you should increase your contribution to offset the lost match. This can be a tall order during a time like this and you may not have the extra room in your budget to do this. Assuming the match was cut and your take home pay has stayed level, at a minimum you will want to keep deferring what you were before the match was removed and try to inch up your savings over time to compensate for the smaller amount going into the plan.
You still want to retire at some point and eliminating or reducing your contribution just gets you further away from that goal.