While it may be acceptable for the company to dictate the terms of the company match, this sounds blatantly illegal if it involves the employee's 401(k) contributions. If it is only the company's matching funds that were lost, then the employees really have nothing to complain about since it wasn't their money to begin with.
I've heard this categorizaton a lot, and I have to take issue with it.
If a company gives me stock options as part of my compensation, it's my money. Not the company's money. Mine. And why should the company have the right to prevent me from using that money as I see fit? I don't understand how FReepers can get so insensed about wanting the government to allow them to do whatever they want with their social security funds, and yet have no problem at all with a private company doing even more harm to their employees by both denying them control, and failing to provide any security.
I'm not advocating that companies should be required to guarantee returns on stock, because that goes against the market. However, it seems wrong for a company to pretend to offer a form of compensation that seems to be used only to keep the stock price artificially high and protect the wealth of the executives.