Contribute to 401(k) in tough times
By Laura Bruce • Bankrate.com

It's not easy maintaining 401(k) contributions in a bear market. Even if you have a fairly diversified portfolio, your investments probably lost 13 percent of their value in 2002, according to a study by mutual fund giant Vanguard.

Now, suppose you're one of the thousands of employees working for one of the companies that has suspended its 401(k) match. Ford, Daimler-Chrysler, Goodyear and Charles Schwab are some of the larger companies blaming suspension of the company match on the battered economy.

"Schwab cutting it is probably what woke most people up," says Rick Meigs, president of 401kHelpCenter.com. "Chrysler struggling is no big deal, or Ford, but Schwab! That's a company whose very livelihood is dependent on 401(k) plans. What kind of message does that send?"

The lousy economy and dwindling 401(k) account balances can push some employees to quit contributing to their 401(k)s. But suspending the company match will turn off a lot of workers.

"Historically, every survey we've done the primary motivator is the match," says Rich Koski of Buck Consultants. "The participation in a non-match 401(k) plan rarely exceeds half your eligible population. If you drop the match, you see people dropping out."

A Buck survey indicates that employee participation in 401(k) plans dropped from 77 percent in 1999 to 73 percent in 2002.

Why they're dropping out
Not all of that can be attributed to employees quitting the plan because there's no match. But if the economy is bad and a company has to suspend its match, it's fair to assume that employees may be having a tough time paying bills and could quit contributing to their retirement plans, so they have more money for current expenses.

But unless you're desperate, stopping contributions to a 401(k) is a bad idea, especially if it's just because you're not getting a match, says Chris Cooper, a certified financial planner in Toledo, Ohio.

"They're not getting any younger, and we live longer. We will need more money in our retirement than any generation in history. It won't be uncommon for baby boomers to hit 100, and they'll need money to live, eat and be cared for.

"Secondly, they miss the tax deferral, which is a huge benefit. If they're in the 27 percent tax bracket and they put $10,000 in the plan, it only costs them $7,300 of actual money that they would take home. So the tax deferral alone is an instant 27 percent return on their money."

Tech Data, an information technology company headquartered in Clearwater, Fla., has 2,700 employees in the United States. The company suspended its match in April 2002.

"It wasn't the most positive news," says compensation and benefits director David Francis. "The company was trying to preserve jobs. Anytime you have to reduce costs that's always one of the options the company goes through. It was a very hard choice, but immediately, the commitment was to reinstate it as soon as possible."