Facebook Rss Twitter Youtube MSN

Why company 401(k) matches matter

Feb 04, 2014 | | Comments Comments Off

Dear Liz: As a CPA financial advisor to individuals and small businesses, I devour your column. It’s almost always spot on. But the first sentence of your advice to the person whose 401(k) doesn’t offer a match — “start looking for a better job” — was not, and you missed an opportunity to educate your readers in how to compare job compensation.

I encourage my small-business and wage-earning clients to adopt a “total compensation” view to evaluate labor costs and to talk wages with their employees or employers. Employer A offering $100,000 might be better, worse or equal to Employer B offering $70,000 plus retirement plan match and, more importantly, employer-subsidized family health insurance. Besides the intangible factor of job satisfaction, one just doesn’t know which employer’s total financial compensation is “better” without crunching the numbers before and after tax. The two companies might be different only in philosophy of how compensation is paid, not better or worse.

Answer: Some jobs come with pensions or pay so good that the lack of a company 401(k) match is all but irrelevant. It’s safe to say those jobs are not in the majority. The median full-time wage at the end of last year was under $44,000, which means half of all workers earned less. Given stagnant incomes and rising costs, many workers have a tough time saving, so the extra help provided by a company match can make a world of difference in their ability to achieve a comfortable retirement.

Nine out of 10 employers that have a 401(k) offer a match, according to PlanSponsor.com, so plans that don’t are definitely outliers. The most common match is now 100%, or one dollar for each dollar contributed, up to 6% of the worker’s salary, according to the most recent Aon Hewitt study. Nineteen percent of the employers surveyed offered this match, up from 10% in 2011. The most common match used to be 50 cents for each dollar contributed up to 6% of salary.

Clearly, more employers are getting the message that good company matches are an excellent way to signal that they care about their employees’ futures.

Related Posts

  • How to protect your 401(k) in a frothy market
    Reader Claudia asks how she can lock in her recent investment gains: “Is there a way to protect the growth on a 401K? From your post, it doesn't a...
  • Roll your 401(k) to an IRA? Maybe not
    Dear Liz: I recently changed jobs and wonder what I should do with my old 401(k) account. Should I roll it into an IRA or transfer it to my new emp...
  • No 401(k)? What to do
    Dear Liz: I work for a small company that doesn't offer the benefits large companies do, such as a 401(k) retirement account. My husband is a feder...
  • Insurance better than 401(k)?
    Dear Liz: Recently, someone from an insurance company proposed that I stop investing through my 401(k) at work and instead invest in his insurance co...

Categories : Q&A, Retirement