20% Match on 401k.. sorta.

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cbr shadow
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20% Match on 401k.. sorta.

Post by cbr shadow »

I recently switched jobs to a small company that offers a "20% 401k Match", meaning they'll match 20% of whatever you contribute. This seems strange to me that they don't do a 1-to-1 match up to a certain percentage.

So basically if I max my contribution ($18,000) they'll put $3,600 into my account.
I guess this encourages people to max their accounts, since that's the only way to get a full company match.. The issue is that these are almost all young and low-wage workers that wouldn't max their accounts, so they're getting very little match. My department is new, I'm the only employee in the dept, and it pays much more than the other depts.

There are good, low-fee options such as VTSAX available, with no added fees from our 401k management company (my company pays them a lump sum upfront), so I'd like to max this out to get the full benefit.

What's a bit strange is that our 401k management company gave us a pretty standard presentation about our options, but made a few strange comments like "I can't state enough how lucky you guys are to have a 20% match. It's really unheard of.. most company matches are 2-4%..5% if you're lucky.." Leaving out the fact that she's comparing apples to oranges since most companies that give a 2-5% match are matching 1-to-1 up to that point.

She also mentioned that the major benefit of contributing to our 401k is that we now have access to exclusive Vanguard funds, mentioning VTSAX. She explained that you need to invest at least $1M to get into VTSAX. These are weird and untrue points, but I bit my tongue as the new guy.

Is this a strange 401k match?
-CBR
livesoft
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Re: 20% Match on 401k.. sorta.

Post by livesoft »

C'mon, the new guy has full leeway to ask the bold questions.

At my previous place of work, after a presentation all the employees in the room would turn to me and give an expectant look. One of the employees would ask, "OK, livesoft, was this presentation legit? I'm sure you have some questions that we all want answered."

Then I got my spouse in on the action. I would provide her with written questions because a BS artist was always sent to lie inform folks about their 401(k) plan. The last few times, she got "the looks", too. Her plan got an index fund because of her questions, then a year later it switched custodians, but kept the same ol' funds. I'm sure next year new funds are coming.

Oh, one more thing: At every 401(k) presentation that I have been to the presenter ALWAYS said "I can't state enough how lucky you guys are to have a xx% match. It's really unheard of.." no matter what the match was.
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cbr shadow
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Re: 20% Match on 401k.. sorta.

Post by cbr shadow »

livesoft wrote:C'mon, the new guy has full leeway to ask the bold questions.

At my previous place of work, after a presentation all the employees in the room would turn to me and give an expectant look. One of the employees would ask, "OK, livesoft, was this presentation legit? I'm sure you have some questions that we all want answered."

Then I got my spouse in on the action. I would provide her with written questions because a BS artist was always sent to lie inform folks about their 401(k) plan. The last few times, she got "the looks", too. Her plan got an index fund because of her questions, then a year later it switched custodians, but kept the same ol' funds. I'm sure next year new funds are coming.

Oh, one more thing: At every 401(k) presentation that I have been to the presenter ALWAYS said "I can't state enough how lucky you guys are to have a xx% match. It's really unheard of.." no matter what the match was.
Ha! All good points. I was tempted to speak up, but the Owner/CEO was in the room and was very proud of the compliments he was receiving about the 20% 401k plan, so that may have put me in an awkward spot if I cut down her compliments.

I wouldn't mind her saying "You guys are so lucky...." if she didn't add the part about "most company matches are 2-3%.. yours is 20!!!" because that's just dishonest IMO.
livesoft
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Re: 20% Match on 401k.. sorta.

Post by livesoft »

I always said, "My first employer put 15% of my salary in my 403(b) and I didn't have to contribute anything. Was that an infinite match or what?"
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corgimom11
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Re: 20% Match on 401k.. sorta.

Post by corgimom11 »

Not completely strange. My company just put in a 401K at the very tail-end of 2014, but with no match. In early 2015, they introduced a match of 25% of total contribution.

Works for me similar to what you mentioned in OP.. in that I max my $18,000 contribution, they contribute $4,500.

Has worked well for me as a high earner in sales since my compensation is heavily variable weighted. As if you were to give me a 5% 1-1 match to my salary pay.. It would only pay out $3,375 vs. the 25% of total contribution match of $4,500. The largest problem with it is our vesting period is 4 years.

But honestly I'm sure it would be interesting to see if the company saves a considerable amount on costs they would have paid on a more "commonly" heard of match - ie 1-1 match up to 5% of pay. In that case, an employee making $60K would contribute 5% of their pay to the 401K and employer would add $3K. With the 25% of total contribution match, the employee would then have to contribute 20% of pre-tax income to get the same match payout as you mentioned.

Low cost funds are a definite plus though, ours - the best is a T. Rowe Price index fund (PREIX) with a .26 ER, the rest are just general target retirement funds with .75+ ER.

Similar to your company, I work at a relatively still startup tech company where we have a considerable amount of younger workers very early in their career.
Last edited by corgimom11 on Fri Dec 02, 2016 9:04 pm, edited 1 time in total.
Random Poster
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Re: 20% Match on 401k.. sorta.

Post by Random Poster »

Somewhat on topic, but accounting for any "match" needs to also calculate the vesting period for the match.

Getting a 10% match may sound great, but when there is a 5 year vesting period, if you leave before 5 years of employment, what is the actual, realized match?
rkrules
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Re: 20% Match on 401k.. sorta.

Post by rkrules »



I wouldn't mind her saying "You guys are so lucky...." if she didn't add the part about "most company matches are 2-3%.. yours is 20!!!" because that's just dishonest IMO.

2-3% of basic ;) [as against 20% of "match"] For e.g. 2-3% of basic could actually be 100% match :)
retiredjg
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Re: 20% Match on 401k.. sorta.

Post by retiredjg »

It is frequently difficult to interpret the wording of the company match without several examples. And then sometimes you wonder….

I think your match is great. You know what it means. You know what you will get. Everybody gets treated the same. And yes, there is an incentive for people to contribute more. Since you have some good choices, that is a good incentive. If your plan had only poor choices, you'd want the other kind of match. :happy
ParkersPaPa
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Re: 20% Match on 401k.. sorta.

Post by ParkersPaPa »

We should recall what 401k's mean to the corporation.

Pre-tax lessens the taxes on the corporation, e.g. Unemployment.

The benefits to the top-tier employees are constrained by the benefits accepted by the lower tier.
edge
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Re: 20% Match on 401k.. sorta.

Post by edge »

The 20% match of contributions you describe is actually pretty crappy for high income folks. E.g. If you make 250k then even a 3% 1:1 match is far better.
inverter
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Re: 20% Match on 401k.. sorta.

Post by inverter »

This is very shady, in my opinion. It is standard in the entire 401k ecosystem for match to be a percentage of salary for both parties, not a percentage of the employee's contribution.

Depending on your position and political capital, you could call them out on that.
HornedToad
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Re: 20% Match on 401k.. sorta.

Post by HornedToad »

johnriley wrote:This is very shady, in my opinion. It is standard in the entire 401k ecosystem for match to be a percentage of salary for both parties, not a percentage of the employee's contribution.

Depending on your position and political capital, you could call them out on that.
It varies by company. Most do the percentage of salary method, but Google for example is 50% of what you put in. Which is obviously quite good if you max or near max.

The problem here is they compared a 3% by salary to a 20% of what you put in but not too much you can do. It's a poor match and probably on par with a 1.5-2% of salary on average or less.
OnTrack
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Re: 20% Match on 401k.. sorta.

Post by OnTrack »

I could see that a 20% match of total contributions could be advantageous for some employees. Let's say someone earns $20k per year but is married to a spouse making $100k per year. The employee then may be able to max out his or her 401k and get a $3600 match. At a 1 for 1 match on the first 6%, the match would only be $1200.
otinkyad
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Re: 20% Match on 401k.. sorta.

Post by otinkyad »

I don't think it's shady, and personally I think the "industry standard" is odd and confusing. There will always be winners and losers with matching programs, and without really knowing the distribution of discretionary incomes among participants, which is mostly unknowable, it's a guess which design is best for the employees, or for that matter the employers.

The major bad design I've seen (beyond the ubiquitous bad and expensive funds) are companies that flat limit contributions to the 5% or whatever. I don't understand the point of that. Maybe it helps with means testing.
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Re: 20% Match on 401k.. sorta.

Post by stoptothink »

Two jobs ago, my wife's employer offered a "10%" match. Sounded great, until a very long talk with their HR manager uncovered that it was 10% of contributions - even she did not really understand it. It was in the non-profit sector, my wife was making <$40k as one of two program directors in the company and most of her full-time employees were making like $25k. I would be shocked if a single other person in her entire 25-employee program even contributed.
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Re: 20% Match on 401k.. sorta.

Post by LadyGeek »

To keep this actionable, please stay focused on comparisons with your own employer matching contributions.

General complaints are off-topic.
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onmyway33
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Re: 20% Match on 401k.. sorta.

Post by onmyway33 »

Your 401k plan seems decent, especially the part about having no administrative fees added. My employer offers in essence a 50% match up to the max contribution, so my $18K gets a $9K match by my employer. However, they apply a 0.32% administrative fee on top of the ER of the funds, which is a bit of a drag. So, I just stick with the cheapest fund available, which is a S&P 500 index fund (0.05% ER) and use other IRA accounts to balance out.
As you have found out, use caution when consulting with the presenters or FAs from the plan management company. I had one tell me that since my employer offered a retirement plan, I could not contribute to a traditional IRA.
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Re: 20% Match on 401k.. sorta.

Post by VoiceOfReason »

This program is a win for the 401k administrator, a win for the company and a loser for the employee.

401k wins bc it encourages a larger contribution by the employee to get full benefit, thus larger $ being managed.

Company completely standardized across all employees their potential payment as has no upside risk to highly compensated employees.

Loser is the employee.

1) low income employee has almost no chance of coming close to contributing 18k, thus their company match is very little.

2) highly compensated employees get crushed in this type of structure. There is a clear max company match regardless of your income. If you make 50k or 300k the car meant ci tribution is the same. The 6% match at 100% is significantly better for the high compensated employee. There is a much higher ceiling. 300k would = an 18k company match with a 6% match at 100%.

If my company match were maxed by this structure I would consider it a huge negative when considering joining the company.
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Re: 20% Match on 401k.. sorta.

Post by grabiner »

The 20% match on all contributions doesn't meet the IRS safe harbor rules for a minimum matching amount, so highly compensated employees might find their contributions limited. (The IRS requires either an automatic 3%, or a 100% match on the first 3% and 50% on the next 2%).
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Re: 20% Match on 401k.. sorta.

Post by ERISA Stone »

grabiner wrote:The 20% match on all contributions doesn't meet the IRS safe harbor rules for a minimum matching amount, so highly compensated employees might find their contributions limited. (The IRS requires either an automatic 3%, or a 100% match on the first 3% and 50% on the next 2%).
A plan must select a safe harbor option (prior to the beginning of the year) in order to receive safe harbor status. Simply meeting the formula minimums doesn't provide safe harbor protection. A plan with the formulas you mention that did not affirmatively select a safe harbor option would still need to pass the appropriate nondiscrimination tests for deferrals and matching contributions.
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Re: 20% Match on 401k.. sorta.

Post by ERISA Stone »

VoiceOfReason wrote:This program is a win for the 401k administrator, a win for the company and a loser for the employee.

401k wins bc it encourages a larger contribution by the employee to get full benefit, thus larger $ being managed.
This is not a loser for the employees. The employees are receiving a matching contribution. The formula given is used to encourage participants to defer more. If one seriously sees a problem because "401k wins bc it encourages a larger contribution by the employee to get full benefit, thus larger $ being managed", the employee should feel free not to defer anything.
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Re: 20% Match on 401k.. sorta.

Post by VoiceOfReason »

ERISA Stone wrote:
VoiceOfReason wrote:This program is a win for the 401k administrator, a win for the company and a loser for the employee.

401k wins bc it encourages a larger contribution by the employee to get full benefit, thus larger $ being managed.
This is not a loser for the employees. The employees are receiving a matching contribution. The formula given is used to encourage participants to defer more. If one seriously sees a problem because "401k wins bc it encourages a larger contribution by the employee to get full benefit, thus larger $ being managed", the employee should feel free not to defer anything.
There are 3 players in 401k plans through employers: Administrator, employer, and employee. Each has a different objective.

The administrator wants to maximize their profit by administering the 401k plan. One way to do this is to setup a plan that forces employees to invest 18k to get the max employer match. (Also selecting profitable, for themselves, investment options)

The employee gets crushed here when compared to other standard 401k match plans that do 6% matches at 100%. The reason being the VAST majority of employees contribute somewhere between 3-10% of their salary to a 401k and have NO HOPE of maxing a 401k at 18k. The employers contribution is significantly limited based on this structure and the fact that most employees cannot max a 401k.

Quite simply it's a difference of having to sock away 18k to get the max match or 6k to get the match. (If you make 100k). Not to mentionthe fact that the employers $ contribution is less as well!

And yes, of course an employee can elect not to contribute. However 401ks are a benefit if employment. When evaluating job offers, the 401k match is part of compensation and needs to be treated equally with salary consideration.

This isn't even a question, this plan is terrible for the employee when compared to a 6% match at 100%. Both in #'s on an anecdotal basis and on a macro scale with how the masses contribute to a 401k.
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Re: 20% Match on 401k.. sorta.

Post by ERISA Stone »

VoiceOfReason wrote:
ERISA Stone wrote:
VoiceOfReason wrote:This program is a win for the 401k administrator, a win for the company and a loser for the employee.

401k wins bc it encourages a larger contribution by the employee to get full benefit, thus larger $ being managed.
This is not a loser for the employees. The employees are receiving a matching contribution. The formula given is used to encourage participants to defer more. If one seriously sees a problem because "401k wins bc it encourages a larger contribution by the employee to get full benefit, thus larger $ being managed", the employee should feel free not to defer anything.
There are 3 players in 401k plans through employers: Administrator, employer, and employee. Each has a different objective.

The administrator wants to maximize their profit by administering the 401k plan. One way to do this is to setup a plan that forces employees to invest 18k to get the max employer match. (Also selecting profitable, for themselves, investment options)

The employee gets crushed here when compared to other standard 401k match plans that do 6% matches at 100%. The reason being the VAST majority of employees contribute somewhere between 3-10% of their salary to a 401k and have NO HOPE of maxing a 401k at 18k. The employers contribution is significantly limited based on this structure and the fact that most employees cannot max a 401k.

Quite simply it's a difference of having to sock away 18k to get the max match or 6k to get the match. (If you make 100k). Not to mentionthe fact that the employers $ contribution is less as well!

And yes, of course an employee can elect not to contribute. However 401ks are a benefit if employment. When evaluating job offers, the 401k match is part of compensation and needs to be treated equally with salary consideration.

This isn't even a question, this plan is terrible for the employee when compared to a 6% match at 100%. Both in #'s on an anecdotal basis and on a macro scale with how the masses contribute to a 401k.
How many plans on the whole do you think match 6% at 100%? It's not the norm.

Without looking at demographics, the matching contribution in this case is likely designed to increase the deferral rate to help with the NHCE ADP rate.

I have worked on hundreds of plans, and I can only recall one financial advisor who attempted to change plan provisions with the perceived goal of increasing plan assets only (meaning there wasn't an obvious benefit otherwise).

However, my overall encounters with financial advisors is not consistent with the greedy, unethical stigma this blog attributes to them.
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badbreath
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Re: 20% Match on 401k.. sorta.

Post by badbreath »

She also mentioned that the major benefit of contributing to our 401k is that we now have access to exclusive Vanguard funds, mentioning VTSAX. She explained that you need to invest at least $1M to get into VTSAX. These are weird and untrue points, but I bit my tongue as the new guy.
I think she just got it confused with this fund
https://personal.vanguard.com/us/funds/ ... IntExt=INT
Or one of the other Instutional funds. That one is offered in my 401k but I dont have $5m in it to make the minimum investment
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Re: 20% Match on 401k.. sorta.

Post by ruralavalon »

This plan is not bad at all in my opinion.

The employer is not required to offer any employer match or contribution. I never had any employer match of any kind, and never had access to Vanguard funds of any type.
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Re: 20% Match on 401k.. sorta.

Post by lazydavid »

badbreath wrote:I think she just got it confused with this fund
https://personal.vanguard.com/us/funds/ ... IntExt=INT
Or one of the other Instutional funds. That one is offered in my 401k but I dont have $5m in it to make the minimum investment
You generally don't have to have the minimum, as long as the sum of all employees do. 401k plans are typically implemented as a trust, so from the brokerage's perspective, there's only one investor, regardless of the number of employees. My wife is invested in two Institutional class Fidelity funds that each have a $5M minimum. Her entire 401k portfolio is just $15k (new job this year).
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Re: 20% Match on 401k.. sorta.

Post by OnTrack »

VoiceOfReason wrote: 1) low income employee has almost no chance of coming close to contributing 18k, thus their company match is very little.
Unless the low income employee's spouse has a high income.
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Re: 20% Match on 401k.. sorta.

Post by Lindrobe »

I think companies do this deliberately to avoid paying much match. At the company that I currently work for, I was ineligible to even contribute my own money to the 401k until the January one year after my starting date. I started in October, so I had to go 15 months without being able to contribute to the 401k. This year is the first year I could contribute. The company has a safe harbor and made the company contribution this September, but because I couldn't participate last year, I got no company contribution. I will finally be elegible for the company contribution next October after I have been with the company for three years, but I plan to leave before then :annoyed
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Re: 20% Match on 401k.. sorta.

Post by jf89 »

I've worked for three companies in my career, and two were x% of your contribution. Perhaps it's an industry standard. Either way... how do I put this nicely?... Stop complaining about something that's benefitting you.
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Re: 20% Match on 401k.. sorta.

Post by BackOfTheNet »

To compare, I put together a couple of tables.

https://docs.google.com/spreadsheets/d/ ... edit#gid=0

Match based on contributions vs match based on salary. For match based on salary, I assumed employer contributes 3% of salary regardless of employee contribution.

Seems like employees with low salary and high contributions would prefer to be matched the %20.
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Re: 20% Match on 401k.. sorta.

Post by ruralavalon »

jf89 wrote: ... how do I put this nicely?... Stop complaining about something that's benefitting you.
That would be a good way to put it.

There is no obligation to provide any type of employer match at all.
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grog
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Re: 20% Match on 401k.. sorta.

Post by grog »

HornedToad wrote:
johnriley wrote:This is very shady, in my opinion. It is standard in the entire 401k ecosystem for match to be a percentage of salary for both parties, not a percentage of the employee's contribution.

Depending on your position and political capital, you could call them out on that.
It varies by company. Most do the percentage of salary method, but Google for example is 50% of what you put in. Which is obviously quite good if you max or near max.

The problem here is they compared a 3% by salary to a 20% of what you put in but not too much you can do. It's a poor match and probably on par with a 1.5-2% of salary on average or less.
I did some quick calculations and that's about was I was getting. Worse than a 2% full match for a lot of people. The exception though is that it's not really that bad for people who are high contributors relative to income (i.e., a lot of Bogleheads). For example if you make 75K and max your contribution, you would be a bit better off with this than a 4% plan.
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cbr shadow
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Re: 20% Match on 401k.. sorta.

Post by cbr shadow »

ruralavalon wrote:
jf89 wrote: ... how do I put this nicely?... Stop complaining about something that's benefitting you.
That would be a good way to put it.

There is no obligation to provide any type of employer match at all.
I understand your point, but I think it's fine to complain about a bad 401k program if it's deceptively advertised. Is there a cutoff for when it's ok to complain? What if there's no match for 5 years, high fees, etc.
The issue is that 401k matching is advertised as "20% match" and usually people don't question that much before accepting the job offer (this was my case), and only later find out there's a 1 year wait until you can contribute, and 18 month wait until the company starts matching.
You're right that they aren't obligated to have a 401k match at all, but in this industry (especially in Silicon Valley) you don't keep employees by having poor benefits.
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JamesSFO
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Re: 20% Match on 401k.. sorta.

Post by JamesSFO »

It's tricky. I've done HR for small companies and run my own business. It's hard to balance these choices and it sounds like they are doing more than some companies (having a match) and less than others (delayed entry, etc.).
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Re: 20% Match on 401k.. sorta.

Post by ruralavalon »

cbr shadow wrote:
ruralavalon wrote:
jf89 wrote: ... how do I put this nicely?... Stop complaining about something that's benefitting you.
That would be a good way to put it.

There is no obligation to provide any type of employer match at all.
I understand your point, but I think it's fine to complain about a bad 401k program if it's deceptively advertised. Is there a cutoff for when it's ok to complain? What if there's no match for 5 years, high fees, etc.
The issue is that 401k matching is advertised as "20% match" and usually people don't question that much before accepting the job offer (this was my case), and only later find out there's a 1 year wait until you can contribute, and 18 month wait until the company starts matching.
You're right that they aren't obligated to have a 401k match at all, but in this industry (especially in Silicon Valley) you don't keep employees by having poor benefits.
I understand that feeling if there was deception.

My point is generally that it seems like whining to complain of a benefit.
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jf89
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Re: 20% Match on 401k.. sorta.

Post by jf89 »

ruralavalon wrote:
cbr shadow wrote:
ruralavalon wrote:
jf89 wrote: ... how do I put this nicely?... Stop complaining about something that's benefitting you.
That would be a good way to put it.

There is no obligation to provide any type of employer match at all.
I understand your point, but I think it's fine to complain about a bad 401k program if it's deceptively advertised. Is there a cutoff for when it's ok to complain? What if there's no match for 5 years, high fees, etc.
The issue is that 401k matching is advertised as "20% match" and usually people don't question that much before accepting the job offer (this was my case), and only later find out there's a 1 year wait until you can contribute, and 18 month wait until the company starts matching.
You're right that they aren't obligated to have a 401k match at all, but in this industry (especially in Silicon Valley) you don't keep employees by having poor benefits.
I understand that feeling if there was deception.

My point is generally that it seems like whining to complain of a benefit.
Also, it's not a bad or poor 401k from my perspective based on the information you've provided. The 1 year wait again is fairly normal for what I've seen. If it's that big an issue to you, you could always try to talk HR/management to see if they'd be willing to provide a better plan. I'd steer clear of the "bad" and "poor" language in that conversation, though.
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Re: 20% Match on 401k.. sorta.

Post by VoiceOfReason »

jf89 wrote:how do I put this nicely?... Stop complaining about something that's benefitting you.
I could not disagree more.

Just accepting and not putting a critical analysis lense to the 401k plan or any benefit is exactly what employers want. It's the same as someone that just accepts poor service from a business and continues to use them.

Let it be known that the plan does not meet industry norms and turning down job offers/leaving is how it gets better.

Every major policy change (for the better) I've witnessed at companies occurred bc of complaints and employee retention issues. Blindly accepting something that benefits you is how it will continue to get worse.
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ruralavalon
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Re: 20% Match on 401k.. sorta.

Post by ruralavalon »

VoiceOfReason wrote:
jf89 wrote:how do I put this nicely?... Stop complaining about something that's benefitting you.
I could not disagree more.

Just accepting and not putting a critical analysis lense to the 401k plan or any benefit is exactly what employers want. It's the same as someone that just accepts poor service from a business and continues to use them.

Let it be known that the plan does not meet industry norms and turning down job offers/leaving is how it gets better.

Every major policy change (for the better) I've witnessed at companies occurred bc of complaints and employee retention issues. Blindly accepting something that benefits you is how it will continue to get worse.
Why complain here? That seems like whining to me. The specific complaint here was about an employer match that was not as generous as the employee wanted, when there is no obligation to provide any employer match at all. The specific complaint here was not about a bad plan with poor funds using high expense ratios.

I certainly agree that raising the issue of a bad plan (like poor fund offerings, no index funds, sales loads, high expense ratios, etc.) and how to improve it with the employer can serve a purpose, and very often encourage posters with poor plans to do that.

Small and medium-sized employers often don't know better, and will adopt improved plans if prompted to do so. Remember that the employer is in some other business than managing investments, and has to devote the most attention to its real business. Employers don't want bad plans. After all the management employees are in the same plan as the rest of the employees. If it's a bad plan for the employee it's a bad plan for the manager too.
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Re: 20% Match on 401k.. sorta.

Post by edge »

There also isn't any obligation to pay you more than minimum wage.

What a remarkably strange point of view.

ruralavalon wrote:
jf89 wrote: ... how do I put this nicely?... Stop complaining about something that's benefitting you.
That would be a good way to put it.

There is no obligation to provide any type of employer match at all.
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Re: 20% Match on 401k.. sorta.

Post by jf89 »

edge wrote:There also isn't any obligation to pay you more than minimum wage.

What a remarkably strange point of view.

ruralavalon wrote:
jf89 wrote: ... how do I put this nicely?... Stop complaining about something that's benefitting you.
That would be a good way to put it.

There is no obligation to provide any type of employer match at all.
They also don't have to give you a job. Too many people think they deserve certain treatment. This 401k plan is absolutely fine (in fact, quite generous in my experience), and complaining about it is pointless. If you don't like it and think you can do better elsewhere, tell your manager or find that better employer. That's how capitalism works. You're value in the workforce is what someone will pay you, not what you think you deserve. God bless America!
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Re: 20% Match on 401k.. sorta.

Post by edge »

I'm not sure what your point is. Be happy with poor benefits and low pay?

The real answer is to find better benefits and higher pay somewhere else. Let the bottom tertile talent go to the worst compensating companies so they can gradually fail.
jf89 wrote:
edge wrote:There also isn't any obligation to pay you more than minimum wage.

What a remarkably strange point of view.

ruralavalon wrote:
jf89 wrote: ... how do I put this nicely?... Stop complaining about something that's benefitting you.
That would be a good way to put it.

There is no obligation to provide any type of employer match at all.
They also don't have to give you a job. Too many people think they deserve certain treatment. This 401k plan is absolutely fine (in fact, quite generous in my experience), and complaining about it is pointless. If you don't like it and think you can do better elsewhere, tell your manager or find that better employer. That's how capitalism works. You're value in the workforce is what someone will pay you, not what you think you deserve. God bless America!
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Re: 20% Match on 401k.. sorta.

Post by LadyGeek »

Please stay focused on the OP's question about the company match. General rants are off-topic.
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Re: 20% Match on 401k.. sorta.

Post by TX_TURTLE »

The term "20% 401k Match" is a bit misleading, you would think it is the percentage of your salary that they are contributing, except that 20% sounds way too good to be true. IMO you need to compare the 401K match with what is offered by other companies (similar in size and operating in the same sector). Your employer has little incentive to offer more than what is customary. On the other side, if you determine that the compensation package is not competitive, should start looking for another job.
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Re: 20% Match on 401k.. sorta.

Post by ruralavalon »

cbr shadow wrote:I recently switched jobs to a small company that offers a "20% 401k Match", meaning they'll match 20% of whatever you contribute. This seems strange to me that they don't do a 1-to-1 match up to a certain percentage.
. . . . .
Is this a strange 401k match?
Because Vanguard, an industry leader, administers "more than 225 distinct match formulas" it would probably not be truly accurate to label any particular formula as strange.

My own impression based on what I see on this forum is that a 1-to-1 employer match is not the norm. According to a Vanguard study a single-tiered employer match, the type cbr shadow's plan offers, is by far the most common type of employer match formula and is offered in about 3/4 of Vanguard administered plans. According to a study by TIAA-CREF Institute "match rates were clustered at 25, 50, and 100 percent, where the median match rate was 50 percent" (p. 7).

In Vanguard administered Defined Contribution plans as of 2015:
1) 58% offered immediate eligibility for employee contributions (Figure 3);
2) 26% required one year of service for matching contributions (Figure 3);
3) 15% of plans provided no employer match (Figure 5);
4) 5% of plans had neither an employer match nor an employer contribution (Figure 5);
5) "The wide variation in employer contributions is the most evident in the design of employee matching formulas. Vanguard administered more than 225 distinct match formulas . . . ." (p. 15)
6) most common is single-tiered, such as 50% of the employee's contribution up to 6% of pay (p. 15); and
7) 2nd most common is multi-tiered, such as 100% of the employee's contribution up to 3% of pay, plus 50% of employee's contribution up to the next 2% of pay (p. 15).
Source: Vanguard, "How America Saves 2016".

I could not find data in that 2016 Vanguard paper on the frequency with which different percentages (e.g. 20%, 50%, 100%) are used in the single-tiered formulas.

A TIAA-CREF Institute paper of 2003 reported on a survey of 209 plans:
1) only 27% (57/209) of plans used a 1-to-1 match formula for the first dollars of the employee's contribution up to xx% of pay (Table 4);
2) the most common match formula offered in 43% (90/209) of the plans, and was 50% of the employee's contribution up to xx% of pay (Table 4); and
3) in about 15% (23/209) of plans the employer match offered was 25% for the first dollars of the employee's contribution up to xx% of pay (Table 4).
Source: TIAA-CREF Institute "Understanding the impact of employer matching on 401k saving".

Edited to add links.
Last edited by ruralavalon on Sun Dec 18, 2016 9:43 am, edited 1 time in total.
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Grogs
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Re: 20% Match on 401k.. sorta.

Post by Grogs »

It's not bad really. It encourages employees to contribute as much as possible rather than stopping at a certain point to get the match. If you're making $60k you can potentially get twice the employer contribution that you could get using the 50% of the first 6% formula we use where I work. Theoretically it would hose those making over $120k who are considered highly-compensated employees, but if non-HCE employees contribute more, their maximum percentage might not be limited. The 20% of contributions up to the max may be intended to do that.

FWIW, when we had a rep from Charles Schwab come by and give a presentation about our plan, he said something along the lines of "Wow, I wish I worked for your company!" I suspect that's a standard part of their spiel.
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Re: 20% Match on 401k.. sorta.

Post by donall »

I think you were quite right to not say anything during a presentation. I've always felt that it is best to approach one on one to ask for changes to things like 401ks. The changes when implemented make the employer look good.

This has worked for me in getting direct deposit set up (yes hard to believe was not available) and getting less expensive 401k options. In your case the employer may end up with safe harbor issues where lower paid employees do not contribute enough. In my employer's case they had to increase the company contribution by 1% due to safe harbor issues.
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