More than 80 companies, including Ford (Stock Quote: F) , Starbucks (Stock Quote: SBUX, and FedEx (Stock Quote: FDX, have reduced or eliminated matching contributions to employees' 401(k)s plans since June 2008, according to the Pension Rights Center. And that list gets longer every day. In one week in February alone, it grew by more than 15 companies.
That's causing a lot of anxiety, as hundreds of thousands of workers take a hard look at their 401(k)s and re-evaluate their retirement saving strategies. So what should you do if your employer cuts its matching contributions? Here are six points to keep in mind.
1. Remember the goal: First, it's important to remember that you're saving for the long term, not the short term. A 401(k) is a retirement-savings program, and your goal is to ensure your retirement security. That hasn't changed. Your first instinct may be to stop making contributions to your 401(k), but that would be the wrong approach. Even without an employer's contributions, a 401(k) has a number of benefits that continue to make it a viable savings plan and an important part of your financial future.2. Don't forget the tax benefits: If you stop making contributions to your 401(k), you'll lose valuable tax benefits. For starters, 401(k)s allow you to contribute pre-tax income, and you don't pay taxes until you withdraw the money. That means your money can continue to grow and compound without being bitten by taxes each year. What's more, because you don't pay taxes on the amount that goes into your 401(k), your contributions reduce your taxable income, saving you money come tax time.
3. Save more if you can: Instead of ending your involvement in your company's 401(k), consider increasing your contribution to make up for the loss of your employer's contribution. For many workers this will be difficult, but if it's within your financial capability, it's a smart move. For 2009, you can contribute up to $16,500 to your 401(k), with an additional "catch-up" contribution of $5,500 for workers 50 and over. You may want to consult with a CPA or financial analyst, or use a retirement calculator to determine how much more you'll need to save to meet your goals.