What should you do when your employer stops its retirement match?

Disclaimer:  We are not financial professionals.  Please do your own research and/or consult a professional before making important financial decisions.

Universities all over the country are temporarily suspending generous retirement fund matches.  Recently, the Fortune 500 company my sister works for decided to follow suit, which is ridiculous given that they’re not in dire straits and have been through worse.  (It makes sense when DH’s tiny company temporarily cuts the match, but a Fortune 500 company that’s built on keeping top talent with firm specific human capital AND wants to be able to gently let older workers go in a world without mandatory retirement… it’s ridiculous and very short-sighted.  I mean, maybe it’s helping them delay lay-offs… I would be more confident in their decision making if they hadn’t tried to make everybody come back into work in person after the initial quarantine was lifted even if they were productive at home or were in Covid danger categories.  But I digress.)

So what should you do if you are in this situation?

Part of the answer depends on how secure your job is.  If you’ve got tenure and you don’t think your uni is going to go completely out of business, or if you’re not in danger of being laid off from a large firm, then you need to make up the difference and contribute more to your retirement account.  If you’re worried about losing your job and being unemployed for a while and don’t already have a good emergency fund, then you might want to contribute the same or less to your retirement account (though if you are in this situation, you should see where you can cut spending and do a financial fire drill before you sign anything that decreases your retirement contributions– you need to take care of yourself in the future too).

How do you contribute more?  The first way is easy:  if you haven’t been maxing out your 401K/403B ($19500 in 2020), then up that to the amount that you used to be matched.  So if your uni gave you 5K if you put in 3K, then up your contribution to 8K (or as close as you can get).  If you had a 100% contribution, then double what you’re currently putting in.  If you put in 10K and your company put in 5K, then contribute another 5K.  (And if the match comes back, you can still contribute the full 15K– your company is allowed to contribute something like $37,500 on top of your own contributions.)

If you’re already putting in $19,500 each year and have lost the match the first place to look to put in more money is into an IRA, up to $6,000 additional.  If you’re able to put in $19,500 to a 401K/403b plan, chances are you are only able to contribute to a backdoor converted Roth IRA because you’re making a lot of money.  But if you do make less than the income limits , you can contribute to a regular IRA Roth or Traditional IRA without having do a backdoor conversion.

If you have already maxed out your IRA space, check to see if your company allows Backdoor Roths with their 401K (these are less likely with 403b, since they are a way for high income people to hide said income from taxes, but who knows, maybe the fed has them).  If so, you can contribute up to $37,500 tax advantaged in one.

If you don’t have any of these options but you want to protect your future self, think about other places that you can put the money you are losing out from losing the match.  Do you have debt (including mortgage) you could pay down?  Do you have a high deductible health insurance plan with a health savings account?– That money is tax advantaged twice!   If you are planning on paying for your kids’ college– maybe the 529 could use a boost?

The truth is, if you are getting your retirement match cut, you are getting a pay-cut and you need to adjust your spending/savings if you can.  If you are in a precarious situation, then you need more money in short term savings even if it means a spending cut.  If your situation is more stable, then you need to make up for the future loss from lost retirement savings, preferably in a way that is tax-advantaged.

Have your benefits been cut this year?  If so, what are you planning on doing as a response?

25 Responses to “What should you do when your employer stops its retirement match?”

  1. gwinne Says:

    Thank you for this! I’m in this situation and need to start adding more. But also waiting to see what my ACTUAL salary is for the year first. Sigh.

    • nicoleandmaggie Says:

      Yeah, I too am curious about my actual take-home. I *think* it should be unchanged from last year (not including DDA that I’m not using this year) but there are so many things taken out that I don’t know prices of like parking, taxes, etc. I do at least know what health insurance/disability/etc. will be costing since I had to sign off on those.

  2. Steph Says:

    My college cut their retirement contribution completely, along with salary cuts for everybody except first year profs. I put a chunk of money into my Roth IRA during the first part of the year, but I’m still scrambling to rebuild my emergency fund after moving and some cat health issues. So I don’t have anything going to retirement right now. I’m hoping they’ll restart the college contribution in the spring, which will force me to contribute as well.

    • nicoleandmaggie Says:

      It’s rough. Retirement is important, but short-term emergency funds come first.

      • becca Says:

        I’m sure you know, but in case your readers haven’t thought about it this way, many “retirement” funds can also be short-ish term emergency funds.
        1) HSAs. I have a chunk in my HSA in bonds for health HSA purposes and the rest in an index fund
        2) The Roth IRA contributions can be taken out; so those can be thought of as a “later tier” emergency fund
        3) the 457(b) can be a really handy as a second tier emergency fund once you’ve separated from service
        4) unique to this year, the 401(k)/403(b)s/457(b)/tIRAs *can* be withdrawn from because of Covid19 hardship. This is kind of complicated, but at least there are no penalties.

        Obviously, I personally would “feel” differently about taking money out of my HSA for healthcare expenses relative to having to tap a 401(k). I tend to think of my emergency funds as layered like an onion, with a security blanket of cash first. But what matters mathematically, is saving what you can and avoiding paying interest when you need money. Psychologically may be different, and viewing the money as “inaccessible” may be a nudge some people need to rein in spending. But worriers may be able to actually invest more for the long term if they feel like some money is available sooner.

      • nicoleandmaggie Says:

        Excellent points all around.

        Especially great point about the 457–it serves as a true emergency fund if you lose employment. I should dig up that post we have on the topic.

  3. Jenny F. Scientist Says:

    Ours went from 2:1 to 1:1. I don’t get the match (for reasons) and am already maxing out basically everything. I doubt they’ll restart it any time soon unless there’s strong pressure. Why spend money on benefits, after all?

    • nicoleandmaggie Says:

      I’ve got a friend who had a 10-1 match and now has a 0% match… like, why not just cut to 1-1?

      I am also really worried about these cuts becoming permanent. Especially with SS slated to run out even earlier than before.

      • Sarah S. Says:

        Ours was cut from 10% match to 0%. I’m very worried it will never come back to that level. I think my colleagues focus much more on salary raises so there won’t be as much pressure to bring it back, and it was quite generous. I’m already maxing out my 403b contributions so the loss of a match is just lost tax protected space.

      • nicoleandmaggie Says:

        10% is so generous! (assuming that means 10x, not one tenth) It’s crazy how so many people (with phds!) don’t realize what a big loss that is to their overall income when the match disappears.

      • Jenny F. Scientist Says:

        Ours was also a 10% match on your 5% contribution. It was free money for retirement! It was a huge perk! Annnnd it’s only at position 17 on the ‘bad things about this year’ list…

  4. bogart Says:

    All great points. Note that if you are 50+, you can contribute larger amounts to both 401/403s and to IRAs (starting in the year you turn 50). Also, if you are married, you can contribute to IRAs for both you and your spouse, even if they do not have earned income.

  5. Revanche @ A Gai Shan Life Says:

    I never had a match so that simplifies matters for us. With the growing family situation, my personal level of comfort keeps changing to “need” more put away SOMEWHERE.

    Thankfully long before that became an issue, I started aggressively stashing more cash for our emergency funds for both our home and the rental. I don’t have the mental space to explore the backdoor Roth route right now, because we have a lot in my traditional Roth. I sure do wish I had gotten into that a while ago. Since I didn’t, I’ll continue to max out PiC’s 401(K), our IRAs, and get back on track to contributing to our brokerage.

    We’ll keep aggressively saving what’s left of this year since we can’t know what 2021 brings in the way of job security (or insecurity).

    I’m also looking at mitigating risk so we’ve chosen to sell the rental which will reduce my workload and risk, and to refinance our own place to reduce our monthly payments. The nice side benefit of that is more money can go towards principal as long as we are comfortable continuing to pay at the higher monthly amount.

  6. Henry Says:

    I’m glad you make this issue explicit. A cut in benefits is the same as a pay cut. But it’s easier to hide and most people don’t get as worked up about it, so it’s an easy move by administrators. A temporary cut is okay, but people have to press to have it reversed ASAP or it’ll become a permanent cut.

  7. Debbie M Says:

    When I saw your question, I thought:

    1) Switch my contributions to my IRA, where I probably have better choices and lower fees.

    But then, I thought:

    2) What if they retro-actively decide to do matching after all? Or what if they start matching again later in the year–could I double my contributions then and still get all the matching?

    Heh, and then I realized that my answers are for people who have a much more limited amount that they can afford to contribute than most of your readers.

    My benefits have not been cut this year. As a pensioner, retirement matches are not a thing, but my pension and health insurance have not been cut.

    In fact, because I’m working this election, I actually have more benefits (by which I mean hourly income, not insurance, vacation, sick leave, etc.) Since one year’s contribution can’t exceed money “earned” that year, I haven’t been able to contribute to my Roth IRA in a while. But it looks like my earnings from this election and the primary will actually let me contribute the full 7,000 (I’m over the catch-up age) this year, which is pretty exciting for me.

    I’m not totally sure I can actually afford to contribute that much (my actual take-home may be less than 7K, depending how many hours I get, due to taxes), but as becca says, I can always change my mind and take it back out again later.

    In semi-related news, my natural gas company just gave me a rebate of back taxes they shouldn’t have charged me because of the Trump tax cut. An “annual” rebate. Which I did not get last year. It feels suspiciously like they saved it up to give to me right before the election to bias me toward the president. So now I’m doubly trying to figure out how to reduce my use of natural gas. I used to love it (more efficient than electricity), but now that my electricity is from wind and my gas is from fracking, it’s not so exciting anymore.

    • nicoleandmaggie Says:

      Given that it’s fall, I think it unlikely that retroactive matching for 2020 will happen. But retroactive matching for 2021 is a possibility depending on what happens in Fall 2021. I’m not hopeful, but a Democratic sweep could add incentives to state governments and other employers to shore up retirement accounts.

      UGH re: timing and “trump” annual rebaate.

  8. omdg Says:

    Ours did this and keep promising they will bring it back when finances improve… but I have my doubts. So frustrating. We get to do 403b and 457b, which is still more than I had where I used to work.

  9. solitarydiner016 Says:

    I have no benefits or match with my job, and this year I’m taking a 30-40% pay cut due to the government paying us less for phone visits. It’s annoying, but there’s really nothing I can do about it other than try to reign in my expenses (I wrote a post about budgeting. Blergh. http://solitarydiner.blogspot.com/2020/09/return-of-budget.html)

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