What Should You Do if Your Company is Cutting Your 401(k) Match? By: Joe Carreno

Public Sector Retirement - PSR - What Should You Do if Your Company is Cutting Your 401(k) Match?

For the first time, unemployment has reached its peak after the incident of the Wall Street crash in 1929. Up till now, millions of people have lost their jobs, as employers claim that they do not have enough money to pay their employees. Meanwhile, only the positions of the people are not getting affected by the COVID-19. Due to the termination of businesses and the lockdown, employers are also unable to pay for their due part in the 401(k) plan of their employees.

As millions of people have become unemployed, their 401(k) plan has automatically gone down. But, those who are at their jobs also do not know how long they will keep on serving at that position—even being the employee under a specific employer. Still, thousands of people have had their 401(k) plan hit.

In reality, the termination of the 401(k) plan is a big issue, as this is one of the most significant sources of income that avoids employees’ threats of outliving money in their retired life. But now, those who have got their 401(k) plan hit by this pandemic are truly vulnerable to the stressed circumstances of the economy.

Moreover, those employees whose retirement is near or who are thinking of taking early retirement will be the weakest people who will be adversely affected by the interruptions in their 401(k) plan.

So, if any one of you is worried due to these prevailing crises, they must not make themselves suffer, as we here have a plan that can reduce the intensity of this damage. Abiding by the following steps, you will have ample relief regarding your 401(k) plan.

But, before we go into the details of those, we would like to add some words about 401(k) plan.

 

401(k) Plan:

Most of the employees rely on their savings after retirement, and to avoid any financial uncertainty, employees need to tap into some savings plan that could provide them with the accumulated money at the end of their service. So, there are different saving plans to serve employees in this regard.

Thrift Saving Plans and 401(k) plans are the leading plans that provide most employees with the money to spend their retired life respectably. The only difference between these plans is that the Thrift Savings Plan (TSP) is adaptable for federal employees only, and the employees can adopt the 401(k) plan in the private sector.

In reality, a 401(k) plan is a sponsored plan offered by the employer of the employee. According to the set terms and conditions of the policy, a considerable part of the deposited money comes from the employer. Moreover, this installment is either deposited monthly or yearly, according to the conditions of the plan.

Apart from this, a little part of that deposited money goes from the employee, and this part is cut from the salary of every month. So, this is how a small amount is reduced from the wages of employees every month, and the employer pays the more significant part, and in the end, this money is given back to the employees as their retirement income.

But, according to the prevailing situation, employers are unable to pay that more prominent part of the amount that is to be deposited, and in this way, the 401(k) plans of employees have been affected severely.

However, according to the situation, it is tough for employers to maintain the payments for 401(k) plans of their employees. Don’t worry, we have a plan that will help you out in this harsh environment. Following the given instructions, you will match your 401(k) plan payments, and you can conveniently avoid derailing your retirement savings.

 

Increase contributions from your end

As employers are less willing to contribute to the 401(k) plans of their employees, the only way out is to get your savings plan terminated. But, if you do so, you will have nothing in your hand to spend your retired life.

So, the best option to cope with this problem is to contribute maximum in your 401(k) plan saving plan. 

For this purpose, you need to reach out to the HR department of your organization that maintains the record of your saving plan. From there, determine how much part was being contributed by your employer in your saving plan and try to provide that amount on your own.

On the other hand, you may also know about the contributions paid by your employer online from your 401(k) plan portal. There remains a summary of your plan, and you may check that amount from there.

Now, you have to bear the burden of full payment of your savings account, and for this purpose, you have to adjust money from the income you have in your hand. At this point, you will have a question about how you will manage to pay that amount on your own. Here are some practices that could facilitate you in paying the full amount of your savings plan.

 

#1. Use Coupons While Buying Essential Items

 While roaming in the market, you might have seen products along with coupons, and these things are highly recommended in these circumstances because you get something free with the original product. So, by doing this, you can have something extra along with the main thing, and that extra thing will surely reduce your shopping budget, as you will not buy that thing.

  

#2. Cut Your Discretionary Expenses

If you are habitual of visiting the Appalachians every season, and you watch movies every week, you must reconsider your priorities.

These are discretionary expenses, and even without these expenses, you may comfortably live your life. So, abandoning these expenses, you will save considerable money that you can use for paying the installment of your 401(k) plan’s savings account.

So, these are the steps that you can follow to meet the amount paid by your employer. But, still, if you cannot meet that amount, put the money forward that you accumulated and let your plan go with that amount. But, leaving the plan will never be a good option. 

 

Consider Changing the Savings Plan

Of course, the employer puts a great amount in your 401(k) plan, and if the employer takes a step back, there is real trouble for the employee. So, in the first step, we concluded that you could meet that amount by sacrificing your non-necessary expenses. But, if you still cannot match your 401(k) plan, you might think about moving your savings plan.

You can move your savings plan from a 401(k) plan to an Individual Retirement Account (IRA). Being a 401(k) plan holder, you can conveniently shift your savings plan.

Therefore, if you cannot meet the match of the 401(k) plan, you can invest that money in the IRA savings plan. Typically, you move your accumulated cash from your 401(k) plan’s account to your newly opened IRA account. Now, it is up to you how much of an investment you want to make in the IRA account based on your earnings.

This savings plan through an IRA will allow you to invest your money in different kinds of stocks, and the interest that you will earn through that investment will keep on accumulating in your IRA savings account. At the end of the term of your service, you will get this collected money as money for your retirement.

So, changing the savings plan from a 401(K) plan to an IRA savings plan seems to be the best solution; otherwise, you might lose your retirement money. And of course, it will not be possible for any of the people to live their retired life without having their retirement payments.

 

Redraft Your Retirement Plan

So, if you do not match your 401(k) plan, you may change your savings plan. Moving to the IRA will be a good option, as we discussed above. But, the need of the hour is that everyone, either having a 401(k) plan or IRA savings plan, must check the status of their savings plans, as this status will provide them with the bright idea that how much money they will be having at the end of their retirement to spend in their retired life.

Therefore, for this purpose, make a list of expenses that you make at your home every month and estimate the money that you will receive at the end of your service. The estimated retirement money can be seen from the portal whose savings plan you have opted for. So, now you have both estimated expenses and the estimated amount of retirement. And do not forget adding 3% of inflation, which is most likely to rise every year.

Now, compare both of these numbers, and see whether your retirement amount is enough for your estimated expenses or not. If it is sitting right with the expenses, that is good, but if this is not the case, you must take the pain of this thing, and consider how you can eliminate this gap between your expenses and income.

In this situation, you need to explore other options that could provide you with a solution to this problem. For example, if you do not have enough money out of your IRA saving plan, you can go back to your 401(k) plan once your organization restarts that policy. On the other hand, you may also move to the annuities.

However, in short, you have to keep yourself to the safe end by calculating the estimated income and expenses.

 

Final Words:

In the meantime, when the pandemic of COVID-19 is creating chaos all over the world, a vast number of small businesses have shut down forever, and unemployment is also at its peak. Moreover, those who are at their jobs are also uncertain about the security of their career. Meanwhile, the saving plans of the employers got a tight blow due to the abandonment of businesses due to the lockdowns in the USA.

So, the problem becomes even worse when employees face the situation of termination of their 401(k) savings plan. This is because employers are claiming they do not have enough money to put in the savings plans of their employees. Therefore, this service has been temporarily cut from employers. Now, the only option appears to contribute to your plan on your own; otherwise, you might ruin your investment savings. 

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