At this point in time, any news seems to be good news. And when it comes to the return of the matching contribution on the 401(k), the news is greeted with a kind of relief. Finally, we are getting back to business, some have suggested. CNN even went so far as to suggest that this may be a precursor to hiring. In most cases, we are simply getting ahead of ourselves.
When the 401(k) match returns, and it will, you might find it to be a different beast than the one that was canceled in the previous years. The 401(k) match, a perk or incentive to get you to invest in your retirement in the absence of a pension, disappeared as companies cut back on hiring, increased layoffs and looked for numerous ways to cut costs.
They knew -and in many cases still do – that those that have a job were likely to stay put. Even without the incentive that the matching contribution was, jobs weren’t readily available. In other words, folks stayed put because they had to, not because company B down the road was offering better benefits than company A.
The investment world seems to have done its part at breeding a sense of recovery. And businesses, although not hiring in a sustainable way, have seen an opportunity in their employees that they did not have previously.
If your company reinstates its match in the next year, it will be somewhat different that the match they eliminated. Businesses have taken on a fiduciary responsibility mantra that they should have had previously. They not only want you to invest in your future, they want to help you be certain that the money is there when you retire.
But they are also concerned about their own image and stock price. Many businesses will continue to offer only matching contributions, or the greatest percentage of available matching funds if you purchase the company shares. This is not an improvement. Most employees make this mistake: they feel as though they know the business well enough to understand its strengths and weaknesses. But you do not. The company sstock as a match should be avoided, even if it is generous (which should be a warning sign itself!).
Worried about their fiduciary responsibility, many businesses will adopt an opt-out policy, enrolling you in your plan whether or not you would like to be. This automatic enrollment seems wise and prudent of the company. But chances are, the investments they channel you into as a result of this effort will not do you much good over the long-term.
Long-term, meaning over the course of a working career is as nebulous a thought as someone staying with any one company for thirty years. Most of us will change jobs numerous times over the course of a career, each time we do, our 401(k) goes with us. Each time it must be rolled over into an IRA. Suggesting that they will have some concern over you retiring with enough money is just lip service. A 401(k) is an “on your own” retirement plan.
Here are three things you can do if your company match returns.
1. If it is in company stock, avoid it. You are in control of your own financial future and if you are investing less than 5% of your pre-tax income, you are squandering valuable time. In fact, less than 10% might be just as hazardous to your retirement.
2. Beware the annuitized return or any fund suggesting income. These are too conservative for any investor below the age of forty and should be used with great caution for the rest of us. These sorts of conservative funds/investments are a shallow attempt at showing how much your employer cares. They don’t really, unless they can do so at the lowest cost possible – for them.
3. Educate yourself about all of your options. The basis of a good retirement plan is not just your 401(k), it is the whole picture. Your financial house needs to be in order and kept that way. You need to be managing your debt better, understanding where you money goes, and living within your means. Although the investments you choose will be helpful, if you are shelling out more in interest that your retirement plan could ever hope to gain, you are moving in the wrong direction.
So, just because the company match is resurfacing, beware. It will not be the same match as before the Great Recession began. Hiring will return when businesses are good and ready to take a risk. Offering their employees a matching contribution is not a risk and will have little effect on whether they hire or not.
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