Companies Lag in Matching 401(k) Programs

NEW YORK (MainStreet) — Companies who halted or suspended their 401(k) matching programs during the Great Recession are not likely to restart them, much to the dismay of many employees who have already had other benefits slashed.

The massive layoffs which occurred in 2008 and 2009 have altered the way many companies operate, especially what benefits they offer, said Raul Jacobs, a financial advisor in Chicago for Waddell & Reed, an asset management firm.

"It is safe to say most employers won't go back to the same matching program they had anytime soon," he said. "For some companies, restructuring their 401(k) matching was an easy target for saving money."

Some employers still offer 50 cents on the dollar and up to 4% to 5% along with a bonus at the end of the year.

"Those companies are usually more lucrative and want to take advantage of the tax benefits associated with matching to their employees," Jacobs said.

Employees who have the option of a matching 401(k) program should invest the maximum contribution before investing in any other accounts, he said.

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"Even if it is only 25 cents on the dollar, just by contributing to your 401(k) you are immediately making 25% return on your investment because of the matching component," Jacobs said.

The best policy is to deduct a contribution from your paycheck every time. By spreading out your contributions, employees can take advantage of "dollar-cost-averaging."

Instead of putting in a lump sum at the end of the year, spreading out your contributions could help employees take advantage of the volatility of the market.

"When the market goes up you make money, when the market goes down you buy cheap," he said.

Ensuring that your 401(k) is diversified is of "paramount importance," and a mistake that many people make, Jacobs said.