ARCHIVED BLOG, PLEASE NOTE: The information below was posted prior to any affiliation with LPL Financial and is posted here for historical purposes only
On May 5th, 2020, Michigan Medicine announced a series of decisions that were made in order to curtail the financial impact of COVID 19 on the health system. One of the primary changes made was a one-year suspension of the 2 for 1 match to retirement plans. This change will provide a significant savings to the University, but what will be the impact to your personal retirement plan?
First, it is important to determine if this impacts you or not. The announcement made on May 5th was strictly for employees of Michigan Medicine employees for the 2021 fiscal year (July 2020 through June 2021). Please note, there are some employees that will be exempt from this change. If you are considered bargained for staff, you may be exempt under your existing contract. For example, Michigan Medicine nurses will still be receiving their 2 for 1 match according to page 123 of their contract executed on October 10th, 2018. Other collective bargaining agreements can be found here:
https://hr.umich.edu/working-u-m/my-employment/union-contracts-wage-schedules
If you work on the campus side of the University, you may not be in the clear. Although it has not been announced that their match will be suspended, it has been in talks that this might still be coming. No decisions have been made at the time of this blog being posted.
If you have determined that you will be impacted by this change, it is time to assess what the impact will be on your personal financial goals. The key indicator of the impact of this change is simply what your financial health looked like coming into this pandemic. This is one of those clear moments in time where you find out what kind of financial life you have built for yourself. If you were just barely getting by financially before the current health crisis, your finances are likely feeling the pain right now. Not only are you experiencing a match suspension, but you also experienced a significant market downturn. Given the speed at which the market has recovered since its March lows, many people are feeling as though they have ‘dodged a bullet.’ I encourage anyone that feels this way to take a closer look at their finances and consider making some changes before the next market correction comes around. Take advantage of this opportunity!
If you have built a solid financial foundation for yourself, you are able to sit back and feel the security you have worked so hard to establish. While we never know what speedbumps we might cross on our paths to retirement, we can be certain that the speedbumps will persist. In the long list of potential unexpected events that could occur, a one-year suspension in a retirement match is relatively minor.
Many people have asked me if there is anything they can or should be doing to minimize the impact on their retirement plans. If you find yourself in a position where your household income has remained stable through this crisis, you may want to consider increasing your savings for a period of time. If you are not currently saving the maximum allowable to your 403(B) and 457(B), this is a great place to start. If you are already maxing out both plans, you may want to consider additional savings outside of your University of Michigan retirement plans. While you might not be in a position to save an additional 10% of your income, any additional savings will help.
If you do not find yourself in a position where you are able to increase savings, the next most important thing you can do is stay the course. I encourage you to continue your 5% contribution to the 403(B) base plan even though you will not be receiving a match.
On a final note, the match suspension was only one of many changes being made. If you were one of the many impacted by other changes (furloughs, decreased hours, Reductions in Force, etc.), the assessment of your personal financial situation becomes much more critical. If you are not already working with a financial professional, I would encourage you to seek out guidance from the MHealthy Resource program or from a qualified financial consultant.
Take care and stay safe!
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