More Companies Suspend 401(k) Payments

As the recession drags on, more U.S. companies are deciding to suspend payments to 401(k) retirement plans. Among the firms pulling out of retirement plans are Saks, Coca Cola Bottling, Reader’s Digest, FedEx, UPS, and AARP, according to the Financial Times.

Cutting 401(k) payments is seen as one way to cut costs as many companies find themselves struggling to remain profitable. That means that employees will be on their own to contribute to retirement savings. Many companies offer matches to retirement contributions of up as 5% of an employee’s salary.

Many companies have also stopped automatically enrolling new employees in 401(k) plans to help control costs, according to Hewitt Associates, a human resources consultancy. Hewit expects about 5% of large companies to suspend retirement plan contributions this year, but that number could increase to 10% in the next 12 to 18 months.

“The continued bleak economic outlook is forcing many companies to make difficult decisions with respect to their retirement benefits,” Pamela Hess, director of retirement research for Hewitt told the Financial Times.

The question is whether or not American workers will begin to cut back on investing in 401(k) contributions if their employers end matching contributions. Fidelity Investments reported the average 401(k) balance fell 27% to $50,200 last year, according to the Los Angeles Times .

American workers will need to see the value in continuing to invest in their retirement plans even as the stock market continues to struggle. One thing to remember is that any retirement contributions you make will allow you to take advantage of dollar-cost averaging, which will help your money grow over the long term. According to Fidelity, investors who stuck with a dollar-cost averaging strategy during the 2000-02 bear market ended up with portfolios worth more than those who didn’t.

Keep contributing a set amount of money to your retirement accounts each pay period to improve your chances for building a comfortable nest egg. Avoid letting daily dips and rises in the stock market keep you from taking advantage of dollar-cost averaging.

This entry was posted on Thursday, March 12th, 2009 at 2:02 pm and is filed under Reverse Mortgage . You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.