As if the recent stock market turmoil hasn’t been enough, here’s a disturbing trend for retirement savers… According to a recent article, General Motors and Frontier Airlines have both stopped matching employee contributions to their 401(k) retirement accounts.
While these companies happen to be in particularly downtrodden industries, and thus might not be a harbinger of trouble on the retirement front in general, you know what they say… Past is prologue.
Looking back to the 2001-2003 recession, the Vanguard Group estimates that 5% of the company retirement plans that they manage suspended their matching retirement contributions, though most reinstated them within 2-3 years. Apparently these contributions represent an average of 11% of a companies profits, so they’re an attractive cost-cutting target.
The ability to freely reduce these sorts of benefits is one of the things that makes 401(k)-type plans more attractive to employers than traditional pensions. Unfortunately, the suspension of these sorts of benefits is akin to a pay cut for affected employees. Sure, they can’t touch that money until retirement, but it’s still their money.
Imagine how you’d respond if you received a memo saying that you’ve been targeted for a salary reduction. A cut in retirement benefits should be interpreted in exactly the same way.