With steep fluctuations in the stock market, employer reductions in matching contributions, and the Enron retirement plan debacle in the news, it’s easy to see why some investors might be tempted to give up on their 401(k)s. But according to the Society of Louisiana CPAs, 401(k)s offer tax advantages that still make them good investment vehicles.

If you lost a lot of money in your 401(k) and you have at least five years before you retire, you may be able to recover your losses. CPAs say the key is to resist the urge to reduce your contributions. In fact, you should increase – not decrease – your contribution level to compensate for investment losses in the past year or two. Congress recently raised the maximum 401(k) contribution for 2002 and passed a “catch-up” provision for workers 50 and older who need to boost retirement savings. For 2002, 401(k) participants can contribute up to $11,000 to their plans, up from last year’s $10,500 limit. And, if you’re 50 or older, the limit is $12,000 in 2002. The catch-up amount will increase by $1,000 each year, until reaching $5,000 by 2006.

Avoid making the mistake of overreacting and putting too much of your money in “safe” instruments like government investment contracts, bond funds, and money market funds. You may protect yourself from losing too much money, but you’ll have a tough time keeping pace with inflation.

If you have 10 or more years to go before retirement, investing your 401(k) money in stocks and stock funds remains the best way to save for retirement. Historically, stocks have outperformed all other investment classes. Just be sure that your portfolio is spread among stocks and stock funds that offer both growth and value investments. One important lesson learned by Enron 401(k) plan participants is that having too much of your portfolio invested in company stock is never a good strategy.

In fact, CPAs and other financial advisors recommend company stock make up no more than 10 percent of your 401(k) plan, no matter how well the stock is performing.

Management wants employees to be in alignment with company goals and loyal employees want to share in the company’s rewards. The key is to diversify your holdings. It is also important that your portfolio investments aren’t likely to move in synch with your company stock.

For example, if you work for a large technology company, make sure that your other investments are well diversified in other market sectors.