MATCHING FUNDS MAY BE ON WAY OUT.

Byline: Barbara Correa Staff Writer

Workers lucky enough to receive matching 401(k) contributions from their employers may find that generosity has its limits - particularly in the current climate of fiscal tightening.

With rising health insurance premiums and the first pension plan contributions they've had to make in years staring them in the face, human resources directors are increasingly viewing the matching contribution benefit as the least painful to cut.

Without that matching, which is essentially free money from employers to employees, the mainstay 401(k) retirement option may not make sense for some long-term investors, financial planners say.

``A lot of companies are getting rid of matching, so it may not be good to go to a 401(k) ... an IRA might be better,'' said Michele Steinberg, financial planner and cofounder of Financegrrl.com, a Los Angeles financial counseling network aimed at people in their 20s and 30s.

Unlike a 401(k), Individual Retirement Account holders are not restricted to any specific mutual fund manager.

Matching contributions as a percentage of total pay peaked at 3 percent in 1999, and had dropped to 2.5 percent by 2001, the most recent year surveyed, said David Wray, president of the Profit Sharing/401k Council of America.

Meanwhile, the tax reduction on dividends that became law in May is acting as an additional disincentive to continuing with the 401(k), though its long-term impact on workers' investing decisions won't be known for awhile.

Tax-sheltered 401(k) accounts do not accrue dividends from income-paying mutual funds or stocks.

The idea of eliminating or reducing matching programs to cut costs amid huge investment losses kicked off in 2001, when several automakers including General Motors announced reductions in the employee benefit.

But the trend has been spreading in the past eight to 12 months, said Rich Koski, a principal and 401(k) expert at human resources consultancy Buck Consultants.

This year a lot of companies with traditional pension plans are finding that investment losses coupled with rock-bottom interest rates are forcing them to pay into the pensions to keep up minimum levels, Koski said. In years past, those minimums were maintained by healthy investment returns.

``At the companies with traditional pensions, there isn't a (human resources) director I talk to who doesn't say, I don't know how I'm going to do the matching,'' he said.

Matching or not, some employees are paying huge penalties just to get at the cash in their diminished retirement accounts, said Percy Bolton, a financial planner in Pasadena. ``Some have said they're better off using the money to buy a car or a home.''