As if losing 46% of their retirement savings in the last three years was not bad enough, participants in some of the country's largest 401(k) plans got even worse news early this year when their employers advised them that they had decided to cancel the matching contributions they had promised --- retroactively!

From March 2000 through March 2003 the broad U.S. stock market index, the Wilshire 5000, fell by 43%. On top of that loss 401(k) fees have been increasing, from roughly 1% to 1¼% per year. Those fees are charged on the entire amount of the participant's account balance, regardless of whether the account is rising or falling. Accordingly, over that 2000-2003 timeframe, 401(k) participants that lost 43% paid an additional 3% in fees, for a total loss of 46%.

It is important to remember that when you lose 46% of your money, you don't get back to even by gaining 46%. Once you lose 46% of your money, you have to gain 85% on what's left in order to get back to even. A simple example proves this point: if you start with $100 and lose 50% the first year, you have $50 left. In order to get back to $100 you have to make 100% on your remaining $50. If you only make 50% in that second year, you're only back to $75.

So, over the last three years, 401(k) investments were plummeting while 401(k) fees were rising. But another, and even more severe blow to many retirement accounts was just around the corner.

One of the biggest attractions of 401(k) plans is employer-matching contributions. Many employers convince their employees to abandon their defined benefit pension plans --- the kind provided by the Central Pension Fund and IUOE Local Union plans throughout the United States and Canada --- by promising that for every dollar the employees put in the plan, the employer will make a matching contribution. Typically, these matches are $.50 on the dollar, or dollar for dollar, up to a limited percent of salary; typically from 3% to 6% of salary. This was part of the 401(k) hoax. Real retirement plans financed entirely by the employer were replaced by 401(k)s where the employer would make a very limited contribution --- but only if the employees finance the lion's share themselves.

However, as the economy has soured, employees are learning a new reality of 401(k) plans --- employers can terminate those matching contributions whenever they please.

In late 2002 and early 2003, the following major U.S. corporations announced that they were terminating or suspending their matching contributions until further notice:

Charles Schwab & Company CMS Energy Corporation Daimler Chrysler Corporation El Paso Corporation Fort Motor Corporation Goodyear Tire & Rubber Corporation Prudential Financial Services Corporation Tech Data Corporation Textron Inc.

And what the participants in some of these plans learned the hard way was that, not only can employers break their promises of matching contributions whenever they want, federal law permits them to do so retroactively at the end of each year. Accordingly, a 401(k) participant can scrimp and save all year to put as much as he can into his 401(k) account, expecting that his employer will match his contributions, only to learn that the employer has decided not to make the match after all.

Under federal law, if the employer has properly worded his 401(k) plan, it is entirely legal for him to decide --- at the end of each year --- whether or not he will make the matching contribution for the prior year.

Yet another sad lesson for those with no retirement security other than a 401(k).