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You are here: Home / 401K / Companies Are Cutting 401(k) Contributions in the Wake of the Pandemic | Smart Change: Personal Finance

Companies Are Cutting 401(k) Contributions in the Wake of the Pandemic | Smart Change: Personal Finance

January 5, 2021 by Retirement




(Maurie Backman)

Millions of individuals have been hurt by the coronavirus pandemic — namely, those who have lost their jobs since the outbreak began. But companies are feeling the pain, too, and are cutting corners to try to conserve resources.

One area they’re cutting is 401(k) contributions. A good 8% of employers have reduced their 401(k) contributions in recent months, reports the Plan Sponsor Council of America, and more are considering joining their ranks.

All told, an estimated 46,000 plans have seen their employer contributions cut. For some, that meant losing an employer match altogether. For another, it meant a reduction.

Image source: Getty Images.

Not surprisingly, small businesses were most likely to reduce their contributions. But either way, losing out on 401(k) dollars puts employees in a bad spot, and if those reduced contributions continue into 2021, savers will need to work even harder to compensate.

A blow to savers

Losing out on employer funds for a 401(k) plan can constitute a serious setback — even if that reduction is just temporary. For someone who normally gets $2,000 annually in matching dollars, losing that sum for even a single year could have long-term consequences when we factor in missed investment growth. That’s because $2,000 invested over 40 years at an average annual 7% return, which is a few percentage points below the stock market’s average, could result in almost an extra $30,000 in accumulated savings. That’s a lot of money to give up.

Filed Under: 401K

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