In these difficult financial times, many industries are continuing to reel from the fallout of the COVID pandemic. Some industries are thriving while others are hanging on by a string. In response to this, many employers have had to make the difficult decision of whether to terminate employees, trim extra expenditures or cut back on benefits such as employer matching contributions.
For employees who work at these firms, this leaves the difficult decision of what to do when your match is reduced or eliminated. This also gets to one of the core mistakes many employees make when determining how much to save within a plan. Employees have continually been told to take the “free money”. Defer up to the match amount to at least get every penny your employer is offering. This is true to a point. While an employee right out of college who doesn’t have emergency savings may just want to contribute to the match for many other employees this is likely a deferral rate that is way too low to maintain an appropriate level of savings for retirement.
This takes us back to our original question. If your employer cuts back on the match, it may very well make sense for the employee to increase their deferral to stay on track. This will provide the added benefit that if the employer can re-instate the match once revenue stabilizes, the employee will then be at a higher overall net deferral rate. This is almost the equivalent of spitting into the wind but if you have an emergency savings account and you are confident your job is stable, it is critical to reassess deferral rates at difficult times like these.