Your 401(k) match at stake

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NEW YORK (CNNMoney.com) -- As the faltering economy forces companies to cut back, employee perks are among the first things to go. And along with free coffee in the break room, the next thing your employer might axe is its contribution to your retirement savings plan.

About 84% of companies in the U.S. offered employees a 401(k) match as of last year according to Watson Wyatt, a benefits consulting firm.

But for cash strapped companies, reducing or eliminating the retirement contribution may be one way to cut back on costs during hard economic times.

Frontier Airlines already announced that it was suspending its matching contributions to 401(k) plans earlier this year. Struggling automakers General Motors (GM, Fortune 500) and Ford (F, Fortune 500), as well as Dollar Thrifty Automotive Group (DTG) and real estate firm Cushman & Wakefield also announced they would no longer be offering employer matches.

"[In a slowing economy] it's reasonable to assume that some employers will reduce or even eliminate the 401(k) match," said Frank Boucher, of Boucher Financial Planning Services in Reston, Va.

Any well-drafted 401(k) plan allows the employer discretion to change the company's matching policy at any time, Boucher said.

Some businesses cut their matches during the last recession eight years ago. Energy company El Paso (EP, Fortune 500), aerospace and defense company Textron (TXT, Fortune 500), Charles Schwab (SCHW, Fortune 500) and Prudential Securities, are just a few of the firms that temporarily suspended their 401(k) matching policies and later reinstated them when economic conditions improved.

None of those companies said they had any plans to do so again.

Whether that cost saving measure will catch on has yet to be determined. Just 2% of companies reduced their employer 401(k) or 403(b) matches this year, and only an additional 4% said they plan to do so in the next 12 months, according to a survey by Watson Wyatt in October.

But going forward, some experts say the trend could spread as more companies look to cut costs.

"I do believe we will see reductions," said Tim Maurer, director of financial planning at the Financial Consulate. "Most business owners -- and individuals -- are just starting to feel the impact of this recession," he said.

For workers who do get their 401(k) match cut, that does not mean they should also stop contributing, experts say.

Even without the contribution from your company, there is still an advantage to socking money in a 401(k), and that's the tax savings -- your contributions come with an immediate tax deduction as well as tax-deferred growth.

"By all means continue to contribute to the plan," said Boucher. In addition to the tax savings, this is also an opportunity to buy securities at low prices, he said. "Don't throw the baby out with the bath water."

But that does not mean employees should bulk up their contributions to compensate for their employer. Instead, individuals should also aim to build up some cash reserves to cover a few months to a year of living expenses in anticipation of layoffs or other financial hardship, Boucher said.

"If you're in your 20s or 30s and you have 10% of your income going into a 401(k) that's probably enough," he said. "I would be more concerned about having some immediate cash in my pocket so if I do lose my job I can cover expenses without going into debt."

In addition to 401(k) contributions, Maurer recommends putting money in a Roth IRA. Those under the age of 50 can make a maximum annual contribution of $5,000, which is not deductible but still grows tax-free and incurs no taxes when withdrawn at retirement. To qualify for a Roth, you must not exceed certain income limits.

"A Roth IRA becomes even more attractive when your match goes away," Maurer said. These retirement accounts let individuals withdraw money at any time with no taxes or penalties, and that can be especially handy during tough economic times such as these.

"This may be a time to prefer to have a little more liquidity than you normally would," Maurer said.