Employers could start cutting 401(k) matches; what must advisors do to prepare?

Sherwin-Williams recently revealed its decision to suspend its 401(k) match starting next month, a company contribution that reportedly reached up to 6%. For employees, both at the paint manufacturer and elsewhere, it is a sharp reminder that even core workplace benefits are not guaranteed.

For advisors, however, it’s a cue to prepare clients for such retirement uncertainties, like when their benefit plans shift.

Teddy Awuah, senior retirement plan consultant at Prime Capital Financial, highlights the importance of “strong plan design.” In his view, employers need to create plans that enable employees to reach their retirement goals, even without an employer match.

“Behavioral finance teaches us that participants often benefit from a nudge to save appropriately. Features like auto-enrollment and auto-escalation, set at levels that encourage employees to save 10% to 15% of their income, can effectively overcome a lack of employer contributions,” Awuah said.

Todd Feder, senior retirement plan consultant at Girard, a Univest Wealth division, believes auto enrollment and auto escalation continue to be the two most impactful drivers of secular change in employee behavior. According to Vanguard, plans with auto enrollment experience a 93% participation compared to 66% for those without.

“Employers say they want the best for their employees, but they often shy away from these provisions. For those that do, they need to step back and reflect on whether the decision criteria to exclude these provisions is based on something other than the desire to drive participant outcomes,” Feder said.

Feder adds that recordkeepers are also “getting smarter” and leveraging AI to deliver just-in-time messaging, alter suggested savings levels or tailor enrollment content to specific demographics such as based on age.

Get back on track

While it’s always smart to take the “free money” from a company 401k match, it’s imperative to maintain flexibility and control by making your own personal retirement plan contributions, according to Owen Malcolm, managing director at Apollon Wealth Management.

For younger workers, he says funding a Roth IRA is usually the best route to not being overly-reliant on company retirement plan benefits, whether it’s pensions, 401k plans, or healthcare.

For older workers with less time to recover from the loss of a 401k match, he admits there are no easy answers.

“If the employee can’t make up the lost contributions from the 401k match out of their own cash flow, hard decisions may have to be made: scaling back retirement spending, delaying the timing of retirement, or even working part time in the early retirement years,” Malcolm said.

In today's competitive landscape for workers' discretionary dollars, implementing a comprehensive financial wellness program is crucial. This can address the underlying concerns employees may have when benefits are reduced.

Awuah said his firm’s financial wellness team in Houston has found great success in offering to review employers' benefits packages directly with employees. These reviews, combined with one-on-one meetings, help employees make informed decisions about their healthcare and personal finances.

Communication counts

Nearly all advisors agree that open and honest communication about changes to employer benefits - while not always welcome - is ultimately appreciated.

“I've found it helpful to encourage employees to focus on their long-term financial goals and to use retirement planning calculators. This helps to re-emphasize the importance of staying the course despite benefit changes,” Awuah said.

Feder, meanwhile, advises participants to “save early, save often, increase what they save when they can and stay the course.”

“The idea is not to wait until you can get to the suggested saving level of 10% to 15% but rather start now with what you can. And, when deciding what you can – save as much as you can until it hurts a little,” Feder said.