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The 401(k) Plan As Rainy-Day Fund

This article is more than 10 years old.
Zvi Bodie
Zvi Bodie

Short-term financial concerns can trump long-range investing in these tough economic times. Some consumers are sacrificing retirement savings in order to pay for groceries or other household expenses. And a growing number of companies are pulling back from matching 401(k) contribution plans. According to a recent survey by CFO Research Services and Charles Schwab, about a quarter of companies have eliminated employer matching plans or are considering doing so.

Zvi Bodie, an economics and finance professor at the Boston University School of Management, has written widely on pension finance and investment strategy. His latest book is “Worry Free Investing: A Safe Approach to Achieving Your Lifetime Financial Goals.” Bodie came into to our studios to talk about cutbacks and the future of retirement savings.

Bob Oakes: Why are companies suspending or eliminating matching 401(k) contributions under their 401(k) plans?

Zvi Bodie: They’re hurting. And they need cash. And since these matching contributions are discretionary, for the most part, they’re cutting back in this crisis.

Once suspended, do you think they’ll ever return? Some of them probably won’t.

None of the companies I know of have said that they are permanently stopping their matching contributions. They’ve all said that they’re suspending them temporarily. Lots of experts are concerned that individuals are going to take lump-sum distributions from their retirement accounts, and that they’ll never resume them.

This program aired on July 27, 2009. The audio for this program is not available.

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