I read with interest this article from CNBC citing a study indicating that 1 in 4 U.S. companies either plan to cut or flat-out eliminate 401K matching contributions due to the current economic conditions. This is an unprecedented move, especially in such large numbers, for U.S. companies. Cutting out the bottled water and jaunts to Hawaii for the sales force is one thing (as a manufacturing/supply chain guy constantly seeing the shenanigans on the other side of the fence, always have to throw a jab in there :>), but cutting out the thousands of dollars per year in matching 401K contributions to employees is essentially an across the board salary reduction for people who took a role partially predicated on this benefit.

Apparently, most of the companies cited see this as a temporary step, but what is temporary? 1 Year, 5 Years, or more? Companies think strategically, and if preservation of cash over a brief period of time is this critical, perhaps there's more going on beneath the surface.

If Your Company Cut your 401K Matching Contributions, is it Time to Leave?

At face value, a 3-6% (typical range of value of the matching contributions) pay cut isn't cause to switch companies given the transition costs, risks incurred by moving to a new employer, hassle, loss of reputation from old employer, possible relocation from a comfortable life, etc. However, if your employer is resorting to such drastic measures as cutting one of the most important employee perks, is this just the surface? Have your company's shares declined more than the peer group in which you compete? Has the credit rating been lowered recently? Have other cost-reductions like job cuts and outsourcing already been enacted and are viewed as insufficient to remain solvent? Are analysts citing the need to generate cash?

These are some questions I'd be asking myself and when combined with the typical bump you could get by going to another firm, + 3-6% since they likely ARE retaining their 401K matching contributions (or else it's unlikely they'd be recruiting right now, right?), plus they may have a better financial outlook. Perhaps the 401K cut to matching contributions was just the tip of the iceberg and there's more pain ahead if you stick around. A move like this within your company should at least warrant further consideration.


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