401K Options in a Down Economy

In the last six months, there have been several reports that suggest that employers are cutting back on 401(k) contributions – up to a quarter of employers are planning on cutting back or eliminating contributions entirely according to surveys across a cross section of industry.  Here are strategies you can consider, depending on whether you are the employer or the employee:
If You are Affected

If you find that you’re one of the people taking a hit on your 401(k), there are several things you can do. The best way to start is by speaking to a financial advisor, who can review your unique situation and review the relative merits of those options that are open to you:

• If you no longer work for the company that sponsors that 401(k), you can move your funds to another employer plan or to your own IRA.
• If you still work at the company that sponsors that 401(k), you can look at the available investment options and reallocate your investments.
• In some cases, you can borrow from or take distributions from your plan without penalty – this is only appropriate in limited circumstances and only where you have a productive use for the funds that is better than leaving the funds in your 401(k).

If you decide to redeploy your investments, you need to have your plans worked out in detail, because you may incur penalties or other costs if you change your mind.

If You are the Employer

If you are the sponsor of a 401(k) plan and are thinking about saving money by eliminating employer contributions or terminating the plan, see if moving your plan to a different investment firm will result in substantial savings without sacrificing your investment options. In any case, discuss the situation with your employees. If you are eliminating employer contributions because profits are down, consider either tying employer contributions to profits or discussing the circumstances that would lead you to resuming contributions. Before you make or announce any changes to your plan, check with your accountant to see what it will cost you to make the proposed changes compared to staying the course.

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