The news has not been good for company retirement programs lately. Let's start with Hostess. The now bankrupt makers of some of our favorite childhood treats like Twinkies and Ho-Hos acknowledged that it used employee wages slated for their pension plans to fund company operations. Sound illegal? It is not. It's unethical, according to the Wall Street Journal, but not illegal since the funds did not come directly from employees. Still, the likelihood that the pension funds will be restored is slim.

Although not as incomprehensible as the actions of Hostess, IBM did something with its 401(k) plan that caught the eye of employees in a not-so-morale-boosting way. It announced that, starting in 2013, it would no longer match 401(k) contributions at every pay period. Instead, there would be one large payment into employees' accounts on Dec. 31 of each year. IBM also said that an employee, who leaves the company prior to Dec. 15, would not receive a match payment.

Minor details, right? Not really. Forbes correctly points out that employees will no longer have that money working for them throughout the year. Instead, IBM, a company that contributed $875 million to 401(k) plans in 2011, will be the beneficiary of investment gains on the funds. Second, IBM now has incentive to lay off or fire employees before that Dec. 15 date. Nobody is saying it would do that, but it could.

It's Alarming
It's nice to think the Hostess story is rare, but what about IBM? If you have a company-sponsored retirement plan, the company has a large degree of control over your retirement planning. When your employer cuts your 401(k) match, that could potentially delay your retirement or force you to contribute a higher percentage to your plan.

In addition, IBM is considered a trendsetter when it comes to employee retirement plans. If IBM makes a change, other companies are sure to follow. With these stories in mind, we put together a few tips for minimizing the damage of such events.

Fund it Now
You have likely heard that you should fund your 401(k) up to the company match. If you are not doing that, change it today because this is one of the best ways to maximize your 401(k). Your company may not follow IBM's lead, but if it does you want to get as much of the company match as you can before it changes the program.

If the Company Changes its Plan, Change Yours
Most 401(k) plans and other retirement programs are inefficient due to the fees that are built into the program. If your company changes the plan, resulting in less of a company match, change the amount you are investing to match the new level. Then, use the funds that were going to the 401(k) and deposit them into an IRA up to the IRS maximum.

Ask Questions
New legislation allows 401(k) account holders to see all fees charged through their company-sponsored retirement plan. If you don't understand your 401(k) fees or this new document, ask questions. Ask your employer and a trusted financial adviser if you have one. Minimizing fees is a highly effective strategy for better investment performance. Ask now in order to get a benchmark to gauge how your employer may change the plan in the future.

Rethink Your Retirement Attitude
When many baby boomers were in the middle of their careers, retirement came in the form of pensions. This made retirement planning much simpler than it is now. Today, 401(k) plans are the rule, not the exception. As these vehicles become more employer friendly, employees must increasingly see themselves as the sole drivers of their retirement income. That means cutting household spending and saving more. Do not count on your employer to fund your golden years. It is likely that as companies find ways to cut spending, retirement plans will shrink even more.

The Bottom Line
It's easy to forget that working for a company and receiving retirement funding from them is putting your financial life in the company's hands. Part of that is hard to avoid, but you can substantially reduce your reliance on the company by investing as much as you can as early as you can.

Related Articles
  1. Investing

    2 Common Ways to Misuse Target Date Funds

    The world of asset classes is just as complicated as taking vitamins. How much should you take of small caps? Intermediate bonds? Emerging market stocks?
  2. Investing

    Why Is Financial Literacy and Education so Important?

    Financial literacy is the confluence of financial, credit and debt knowledge that is necessary to make the financial decisions that are integral to our everyday lives.
  3. Retirement

    How Are 401(k) Withdrawals Taxed for Nonresidents?

    As a U.S. nonresident, deciding what to do with your 401(k) after you return home comes down to which tax penalties, if any, you're willing to incur.
  4. Savings

    Become Your Own Financial Advisor

    If you have some financial know-how, you don’t have to hire someone to advise you on investments. This tutorial will help you set goals – and get started.
  5. Options & Futures

    Pick 401(k) Assets Like A Pro

    Professionals choose the options available to you in your plan, making your decisions easier.
  6. Investing Basics

    5 Things To Ask Before Hiring A Financial Advisor

    Choosing a financial advisor isn't an easy task. Here's a list of the most important things to consider when planning for your financial future.
  7. Retirement

    How to Choose 401(k) Investment Options

    401(k) plans have become an integral part of retirement planning for good reason.
  8. Professionals

    Advisors: Clients Want These Three Things from You

    Calmness, transparency and credentials (and more) are the key elements clients look for when selecting a financial advisor.
  9. Investing Basics

    Hiring a Financial Advisor? Look for the CFP Label

    Don’t skimp on the CFP designation. Here's why those three letters show that someone is qualified in financial and investment planning.
  10. Retirement

    How Much Can You Contribute to Your 401(k)?

    Given the fairly high compensation limits on these retirement plans, most workers can pitch in more than they currently do.
  1. What are the risks of rolling my 401(k) into an annuity?

    Though the appeal of having guaranteed income after retirement is undeniable, there are actually a number of risks to consider ... Read Full Answer >>
  2. Can my 401(k) be seized or garnished?

    As long as your retirement funds are held in your 401(k) and you do not take them as distributions, your 401(k) cannot be ... Read Full Answer >>
  3. Are mutual funds considered retirement accounts?

    Unlike a 401(k) or Individual Retirement Account (IRA), mutual funds are not classified as retirement accounts. Employers ... Read Full Answer >>
  4. Why is my 401(k) not FDIC-Insured?

    401(k) plans are not FDIC-insured because they are typically composed of investments rather than deposits. The Federal Deposit ... Read Full Answer >>
  5. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>
  6. What are the best ways to use your 401(k) without a penalty?

    The best way to use your 401(k) retirement savings account is to take normal distributions after you reach retirement age. ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!