Smart choices key to maximizing company's 401(k) match

When companies go through difficult times, they respond in different ways. The high-profile way is to lay off employees.

But businesses also cut back in less-publicized ways, such as reducing their 401(k) matching contributions. If this happens to your plan, you may want to take some action.

How likely is it that your company's matching contributions could be cut? Nobody can say for sure.

While it's true that some big companies have either cut or suspended their matching funds in recent months, it's far from clear that "downsizing" 401(k) contributions will become a national trend.

Companies know that reducing their 401(k) match will save money in the short term but at a cost to employee morale and loyalty.

Consequently, you may not have to worry about your 401(k) match being cut.

Of course, if you aren't contributing enough to your 401(k) to even earn the match, you also won't have to worry about it being cut. But keep this in mind: If you don't earn your employer's match whatever it is you are literally walking away from free money. And that's not a good move.

So, assuming you are putting away enough in your 401(k) to earn your employer's match, and your match gets cut or suspended, what should you do? The answer depends, in part, on just how the match was being awarded. Some companies make their 401(k) matches in cash, giving you a free rein to invest the money among the various options in your 401(k) plan. Other businesses make their matches in company stock.

If your match was being made in cash, you'll want to consider how your 401(k) dollars are being allocated. Were you using your match to buy growth stocks within your 401(k)? Growth and income stocks? Bonds? Money market vehicles? Or were you spreading out the match among all these categories?

Whatever you were doing with your match, its disappearance or reduction will affect your 401(k) portfolio. Therefore, you'll want to re-examine your remaining contributions to see if they reflect your needs, goals, tolerance for risk and time horizon. If not, you may need to rebalance your 40l(k) to accommodate the loss of your match.

You also may want to review your 401(k) holdings if your employer's match had been made in company stock. Should you compensate for the loss by voluntarily putting more of your 401(k) dollars into company stock? Not necessarily.

It's generally a good idea to avoid overweighting a 40l(k) with the stock of one company even if it's your own. Instead, look at how your company stock fits in your 401(k). Was this stock a growth vehicle? If so, do you need to replace it by adding to your other growth accounts?

Again, you need to look at your entire 401(k) picture and take action accordingly.

Obviously, you'd prefer not to lose all or part of your employer's 401(k) match. But if it happens, you can minimize the impact by maximizing the rest of your 401(k) investments. Even without a match, your 401(k) can be a great retirement savings vehicle when you make the right choices.

(Betty Neal is a certified financial planner and investment representative with Edward Jones Investments.)