Q I've received a letter from our parent company saying it is "exploring" dropping the match program for our 401(k) plan in late 2009 or early 2010. After being informed of a wage freeze and being forced to take a week without pay already this year, this is hard to swallow. It was hard enough in the last year to see that matching amount "lost" each quarter because of the fall of the stock market, but this on top of it really makes it hard to know the right thing to do.

My husband and I are in our early 30s. What would be the best plan for our money right now -- plow every dime that we can into our mortgage and paying that off as early as possible (because, given our interest rate, it is like getting 5.875 percent return on our money)? Or do we increase our saving into cash or into our retirement accounts?

JESSICA

A Sad to say, the ranks of match-deprived employees are expanding. A growing number of companies are saving money by reducing or eliminating a company match, among them General Motors, FedEx and Eastman Kodak.

The typical matching contribution in a 401(k) or comparable savings plan is 50 cents for every $1 the employee puts in, up to 6 percent of the employee's contribution. Of course, some companies do more and some do less. Companies are desperate to conserve cash. But it's a big compensation cut for households and a terrible move from a public policy point of view. I hope your company decides against a cut.

That said, a couple of thoughts:

I would keep participating in the retirement plan for now, even if the match is reduced or eliminated. The experience of the 2000-2001 downturn is that most companies restored the match as soon as it was financially feasible. The other factor is the power of having pretax money coming out of every paycheck and automatically going into a long-term savings program.

To be sure, if you did put your savings into paying down the mortgage, you would earn a 5.875 percent return on investment -- a good return in this market. Yet I'm wary of the strategy of vastly accelerating mortgage payments for many people. It all has to do with a margin of safety. You're putting most of your financial eggs in one basket -- a home. That's another way of saying that your financial health would be increasingly dependent on how one asset performs in coming years. And you're already very exposed to the local economy and local job market.

That's why I still prefer that most people focus on building up a well-diversified portfolio of cash, stocks and bonds, and not just in retirement savings accounts. In all economic seasons, but especially during a recession, you want to make sure you have a nice cushion of emergency savings to tap if needed.

Chris Farrell is economics editor for American Public Media's "Marketplace Money." Send questions to cfarrell@mpr.org.