Wednesday, January 31, 2007

Does your employer's 401k match really mean anything?

I recently received notification regarding my employers 401k match. Although strategically it's an important thing, 25% match with a multi-year vesting schedule isn't that attractive.

To me it engenders: "Oh, that's nice, another $4,250 saved for retirement" -- If I can keep it! Who knows if I'll work out at Big Company. $4k isn't really enough of an incentive (assuming they don't axe me). On the other hand - and this is truly psychological rather than economic, a 50% match would feel much more substantial $8500 each year. However, Big Company chooses not to do so.

In general a 25% match is not so much a paternalistic benefit as the minimum contribution a company must make to offset accusations of Top Heavy participation - an accusation federal regulators can make if the Highly Compensated (HC) individuals, who earn more than $80k, participate to a greater degree than the non-HC employees. Top Heavy plans require plans limit contributions by HC participants. It's quite frustrating.

Consider the fact that many companies no longer have the burden of funding pension plans, a 50% match is quite a small cost by comparison. Big Company is trying to become more employee focused, I wonder if anything new will come out.

At this point a 25% match means very little to me. Though I would certainly want a new job offer to offset what I might lose in unvested funds.

Regards, makingourway


mOOm said...

Universities are typically very different here. Mine contibutes 8% and requires us to contribute a 1% minimum (which I recently increased to the maximum allowed $15.5k). No matching... that is just the way it is. You do need to be there at least two years to vest the employers contribution which is a good incentive to stay at least that time. Universities have more problem with people quitting than them firing them :)

StealthBucks said...

In short, You are getting hosed. My "Big Company matched Dollar for Dollar to 6%" No pension but at least they throw in a good $15K for me per annum. Take your CEO clients advise and explore alternatives. I am not being a snog but all things being equal more compensation is a Martha Stewart "Good Thing" Also, ditch the "wait to approve thing" Blogging means taking the good with the bad" but never the abusive.