Companies begin eliminating 401(k) matches to cut costs

Companies are beginning to eliminate 401(k) matches to cut costs, as businesses face financial strain amid the coronavirus outbreak. Personal Finance Expert Rachel Cruze joins Yahoo Finance’s Seana Smith to discuss how Americans can manage their savings.

Video Transcript

SEANA SMITH: Welcome back to Yahoo Finance. Financial concerns stemming from the coronavirus outbreak have really rippled throughout the entire economy. And, as businesses deal with a decline, potential decline, in revenue, many are looking at how to cut some of their costs. And it's leading some to trim their 401(k) obligation. So what does this mean for you, as you look for, really, you're expecting your company to match those, that input that you're putting into your 401(k)?

So I want to bring in a personal finance expert, Rachel Cruze. And, Rachel, when we talk about this, as it stands, at least before the coronavirus outbreak, we had 95% of companies offering either a company match or some other type of contribution into-- into an employee's 401(k). If they stop doing that, what does that mean for our viewers out there? And how do they best address this situation if they find themselves facing this type of problem?

RACHEL CRUZE: Yeah, absolutely, well, there are only things that-- you know, there's a lot of uncontrollables out there that we cannot control, and then there are things that you can control. So you cannot control if your company decides not to do the match in the 401(k) if they stop it completely. But what you can control is everything else.

And so I always recommend consumers, in general, whether coronavirus or not, that some of you may actually need to pause your investing. So I want you out of debt completely with a fully funded emergency fund of three to six months of expenses saved in the bank.

So, if you've not done that yet, then go ahead and pause your 401(k) and your Roth IRA for now. Get that stuff stable, especially because of considering what's going on right now in your personal life with your money. But those people that don't have debt-- you have a fully funded emergency fund-- then go ahead and keep investing that 401(k), and take advantage of things like even the Roth IRA.

SEANA SMITH: So, Rachel, at a time like this, then people should stop, pause, kind of examine their 401(k) and really try to make sense as to whether or not it makes sense for them to continue putting as much money as maybe they did before this recent pullback or before they had some sort of life-changing event?

RACHEL CRUZE: Yeah, that's right. I mean, coronavirus or not, again, I really want people to have a really stable financial ground under them with not owing anyone anything, no debt, and that cash in the bank for that emergency fund. And then you can go and start investing.

But, again, if you're there, this is a great time to invest. I mean, the market is down. So it's basically on sale. And so you want to take advantage of that. So keep investing, again, if you're in a position to. And don't take out your investments. This is a roller coaster ride. Don't jump off.

SEANA SMITH: Rachel, part of the Trump administration's efforts to ease the burden on Americans right now, they extended the tax deadline. So, right now, it's July 15 instead of April 15. Does that have any affect on retirement accounts?

RACHEL CRUZE: It does. So your contributions to HSAs, Roth IRAs, and IRAs are extended to July 15 as well. And so this is a great position for you to be in, possibly, because you'll be able to fund that, from 2019 really, those contributions. So go ahead, and do that, again, if you're in a position to invest. And so Roth IRAs, you can put up to $6,000, HSAs $3,500 or, if you're married, $7,000 as a couple.

SEANA SMITH: And, Rachel, some companies are proactively giving consumers more time to pay off their debt. Is there any downside for some of our viewers if they're deciding whether or not to do that right now to actually follow through and maybe push off their debt for a couple of weeks or a couple of months?

RACHEL CRUZE: Well, if your income is not steady and if you're in an industry, sadly, that's going away or laying off people, then you could take advantage of it if you want, but you have to know that you are going to have to pay this debt back, OK? It's coming. It's not forgiveness. You are going to have to end up paying it.

So, if you can stay current, my encouragement is to stay current. But, if you get to a position, you don't have an income coming in. You've lost your job. And you can only cover food, shelter, utilities, and transportation. Those are the four walls. Those are the very first things you want to pay for.

And so, if you-- if you get through that, and you have no money, then, yeah, you can take advantage of some of these services that they're offering, some of these grace periods, but don't forget you are going to have to end up paying it. So the more current you can be, the better off you're going to be.

SEANA SMITH: All right, Rachel Cruze, thanks so much for joining us.

RACHEL CRUZE: Yeah, thanks for having me.