Debt Relief Hard To Handle | Employers Change 401(k) Rules


Debt relief and 401(k)Debt relief is a hot topic in today’s recession. Many consumers are searching to find extra money for savings, bills and personal expenses. They also are seeking ways to fund retirement, college and other large expenses that will require thousands of dollars. Due to the recession, however, there are many changes in business’s dealings with their employees and how they are able to help them manage their finances.

Changes in the 401(k)

One surefire way to plan for retirement has always been company-matched 401(k) retirement savings accounts. They are tax free, up to a level, and have proven to be a great way to store away money, little by little. Unfortunately, the recession’s aftermath has changed the way employers handle this account.

New research is showing that, in an effort to save money, 25 percent of U.S. employers are either eliminating or ending matching contributions to employee 401(k)s. According to a study done by Charles Schwab Corp, an additional 25 percent of employers are also planning on utilizing a “limited enrollment” plan, rather than the standard open savings plans available to all employees. Steve Anderson, director of the retirement division of Charles Schwab, stated, “Most view this as a temporary step. They don’t see that as a long-term approach.”

Research on 401(k)s

According to research done by Charles Schwab, consumers are looking at their 401(k) as their primary debt relief tool as they retire. They also said that their most valuable feature was the company’s matching contribution. If this contribution is eliminated, even if for just a period of time, they would consider other methods of saving for their futures. Anderson added, “Although companies are using the method of scaling back 401(k) contributions temporarily, many workers are interpreting this as a tactic their company may utilize at any time in the future.”

Another result of cutting into the 401(k) as a money-saving tool is companies are losing employee trust and loyalty. Of the 107 human resource and 112 senior finance executives polled, 63 percent said that added worries about their retirement savings were “creating a more difficult work environment.” Lonnie Richardson, financial analyst, stated, “It’s hard to work for a company for 20 years, build up a trust and then have them threaten your retirement security. …I’m not saying they purposefully did it, but just knowing it is an option makes it hard to rely on them for my family’s future. Now they are saying ‘We’ll contribute to your retirement if we can.’ That’s a lot for me to stomach.”

Consumers have to be proactive

Despite the Charles Schwab study, many consumers are still looking positively at the 401(k). They are mostly realistic and understanding. Charles Avery of Glenbrook Massachusetts is one of the many workers for a company that discontinued the 401(k) contribution. He believes that it’s a necessary action. “For my company to stay afloat they cut everything … some pay, some workers, contributions. …I’d rather have to deal with that than have the company fold and have to start over job-wise. Plus I can always get a second job to create more savings for retirement in the meantime.”

Avery is like many Americans who are proactively working to solidify their financial futures. Many people will have to do the same, as businesses are still wading through the murky waters of the recession. To handle bills, find debt relief and still manage to save is going to be difficult, but not an impossible task.

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