A few months ago, my company has been looking to cut cost in order to balance their budget. I guessed, I can say that to most companies during the economic downturn.
The company does not have any plans of laying off people and we are also in a hiring freeze except for the critically needed staff.
However, what they did was the company stopped the matching contribution to my 401k temporarily.
From what I know, this is part of the agreement with the union that when there are financial issues with the company, one of the first thing that would be cut is the retirement plan matching. My company matches up to 4% of my salary, which seem pretty decent as I know other companies are probably matching around 6%.
As much as I would like to complain, I still feel very fortunate that I still have a job after seeing a lot of my friends and relatives lost theirs, although, some of them have already found new employment recently. And this was the thought process for most of us at work and everybody is just glad that we are not collecting unemployment benefits and stressing out looking for a new job. Unemployment benefits are usually not enough to cover what we used to make, unless the company will also offer severance pay for a few months to help us out. That is why it is always good to have an emergency fund that would cover at least six months (and preferably) one year’s worth of our household expenses. There are also additional unemployment issues that we would need to be concerned about such as the medical benefits, transferring retirement plans, managing budget during the crisis, etc. As for some of us, the biggest concern would be the medical insurance as even with the COBRA coverage, some people may not be able to afford that as well because the priority would be meeting the day-to-day living expenses.
Back to the issue of the 401k match suspension, there is no reduction in our salary but to me any decrease in employee benefits also means a decrease in salary since I would be using my salary to keep up the expenses that I usually got for free. In this case, I’ve gotten used to having that extra 4% matching added to my retirement, so I have to tap 4% of out of my salary in order to keep the same level of contribution. So it felt like I just have a 4% salary reduction. Of course, I have a choice of not contributing that 4% out of my pocket but I’d rather continue the same level of contribution. Besides, the 401k contribution is tax deductible so in essence, it’s not really 4% because of the tax impact.
So now, there is little to fret about as the 401k Match is back effective July 1, 2011. However, the company is only returning half of the match (just 2%) and the full match will be back January 1, 2012. Hey, 2% is still better than nothing at all!
Other good news last week is how the stock market is coming back up, at least temporarily. I am glad to see how the stock market bounced back last week as my retirement balance increased as well. For five consecutive days, the Dow Jones and S&P index has been on the rise due to the positive news regarding the Greece debt, manufacturing reports, housing news, etc. Let’s see what happens after the 4th of July weekend.
Not that I’m overly concern since I’m in it for the long haul and I’ve been contributing on a consistent basis so I shouldn’t be worried with ups and down in the market. But of course, I’d like to see it “up” or “bullish” five years before my retirement age before I re-allocate the stock funds to low-risk accounts.