Can employer cut its 401(k) contribution?
Dear Dr. Don,
Until recently my husband's company had a 100 percent match to his 401(k) contribution. This year, his company lowered the match to 50 percent. Do companies usually have this much freedom to change how much they contribute?
-- Donna Dumbfounded
Yes, companies can decide whether or not to offer matching 401(k) contributions. After the financial crisis and subsequent recession many firms stopped matching contributions completely. A majority of these same firms reinstated the match after the economy improved.
It is odd that your husband's firm is doing the opposite. The economy is growing again, yet your husband's firm is choosing to reduce its matching contribution.
I'd encourage your husband to contribute up to the limit of the company match. Making 50 percent on your money isn't as attractive as doubling your money, but it's still an incentive for employees to fund their retirement accounts.
Contributions past that point don't get the match, but they're still tax-deferred. So you may want to invest more into your 401(k), especially if it offers good investment choices. You should also compare it with other tax-advantaged retirement options to make sure you're getting the most out of your money.
Get more news, money-saving tips and expert advice by signing up for a free Bankrate newsletter.
Ask the adviser
To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "Financing a home," "Saving & Investing" or "Money." Read more Dr. Don columns for additional personal finance advice.