Should You Stop 401k Contributions When There’s No Match?

As the economy has darkened, more and more companies have “suspended” their 401k matching contributions. (The Pension Rights Council maintains this list of companies that have stopped 401k matches.)

Employer 401k matches are not required by law but they are at the heart of what constitutes a “good” 401k retirement program. The match provides strong incentive for workers to save and invest their own money for retirement. The return from an employer match is immediate and risk free.

Long term, 401k matches are important to growing workers retirement accounts to meaningful levels. Here’s just one example using this 401k calculator of the dramatic difference an employer match can make to a typical worker’s retirement savings:

Long Term Impact of Eliminating 401k Match on Retirement Savings

Long Term Impact of Eliminating 401k Match on Retirement Savings

The simple truth is that with an employer match, the 401k is at the pinnacle of personal finance planning – there likely is no wiser use of your money than ensuring you get the maximum 401k match. But without the match, a 401k becomes much like any another savings product competing for your scarce dollars.

The Wall Street Journal recently ran an article suggesting three ways that workers who’ve lost their 401k employer matches might want to consider redirecting their 401k contributions:

  • Pay Off High Interest Rate Credit Card Debt
  • Pad Emergency Savings Funds
  • Consider IRA, Roth IRA or Other Retirement Savings Strategies in Lieu of 401k

This can be sound advice but only, we hasten to add, for people who truly are in control of their finances. We fear that some people will use the suspension of an employer match as a reason to cease contributing to their 401k altogether and spend the money instead.

The suspension of so many 401k employer matches will do great harm to workers’ retirement savings; it would be tragic to see the damage made worse by workers stopping their own retirement savings. Even without an employer match, the automatic payroll deduction of 401k contributions is a huge benefit for many workers that is best left untouched.


  1. [...] few good articles I read this past week: The first article, on 401(k) planning is titled,”Should You Stop 401k Contributions When There‚Äôs No Match?” The author (there’s no byline) offers a nice chart comparing the long term (35 year) [...]

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