Young bucks - How and why your 401(k) is changing

[SumDay]

NEW YORK, Feb 6 (Reuters) - Employers are getting smarter about how they run retirement plans. They are making some moves that are good for younger workers, including automatically enrolling new employees in 401(k) plans and defaulting their savings into target-date funds, which offer an investment mix designed to meet retirement goals.

Other choices are raising eyebrows, including International Business Machine's decision to make its 401(k) matching contribution only once a year.

David Huntley, principal at HR Consultants in Baltimore and publisher of "The 401(k) Averages Book" talks about these and other trends.

YOUNG BUCKS - How and why your 401(k) is changing | Reuters

 

[Lazarus]

People will quit right after the payout. Future layoffs will be right before the payout.

 

[earlyguy07]

What a terrible trend. I'd certainly leave as soon as the payout occurs. Makes recruiting and retention difficult with swathes of people leaving simultaneously.

 

[pb4uski]

..... Future layoffs will be right before the payout.

and the class action lawsuits will follow.

IBM is stupid and short-sighted.

 

[bo_knows]

I guess I'm a "young buck". I would never w*rk for a company that did 401k match payouts once a year. That is just plain silly.

I guess the auto-enrollment is a good idea, but that doesn't really apply to folks who actually know the benefit for a 401k.

You know how I wish 401k's would change? I wish that employees could choose any provider, and that you weren't locked into whichever provider your employer used. Service fees (for the employer) should be on an individual basis to allow this.

 

[Rustward]

I would never w*rk for a company that did 401k match payouts once a year.

Bo, I sincerely hope that you do not have to eat those words in the future.

Never is a long time.

 

[FIREd]

DW's company pays out the 401K match on the last day of the year. I don't think it's a big deal. We think she's fortunate to receive a 401K match at all. Bonuses are paid once a year too, and the amount is generally much higher. No one seems to get worked up about that.

 

[Rustward]

People will quit right after the payout. Future layoffs will be right before the payout.

I know of employers that pay the match for employees who have terminated as long as they are still in the plan on the payout date.

 

[Marathoner]

The only two companies I've worked for matched once per year. The first one was back in 2002.

These are both well-respected financial services companies that have always had hundreds of applicants per open position. Did not impact recruiting or retention.

 

[pb4uski]

DW's company pays out the 401K match on the last day of the year. I don't think it's a big deal. We think she's fortunate to receive a 401K match at all. Bonuses are paid once a year too, and the amount is generally much higher. No one seems to get worked up about that.

Would you think it is not a big deal if DW resigned or was laid off a week before the end of the year?

I think bonuses are different in that they are typically not formulaic based on judgement of performance or even where they are they are formulaic their payment is commonly based on meeting certain bogies for the recently ended fiscal year.

 

[FIREd]

Would you think it is not a big deal if DW resigned or was laid off a week before the end of the year?

No I would not. The 401K match is paid at her employer's discretion. They owe us nothing.

 

[pb4uski]

No I would not. The 401K match is paid at her employer's discretion. They owe us nothing.

I guess it is one thing if it has always been done that way. To me, the most objectionable thing in IBM's case is a change from an employee friendly approach to a less employee friendly approach.

I wonder how much they will "save" with the new approach and if the benefits exceed the intangible costs (including the bad press they have received as a result of the changes).

 

[rodi]

It would give me pause if my employer switched to annual match deposits.
Profit sharing is a different thing - that's more like bonuses. But the salary match should go in at the same time as the salary payroll deductions...

My employer pays an annual bonus. It is formulaic. Except they've stopped following the formula. Even the higher management is calling foul on the fact that "bogey's" were exceded but the payout is smaller than the formula.

In previous years (decades) they would pay out even if you'd left the company after the end of the year, but before the pay out. That changed last year.

I expect a LARGE exodus after the payout this year for a variety of reasons. Payout is next month and I know several who are already interviewing. I'm sure there are more I don't know about.

If the company touts 401k match and bonus as part of their "total compensation" - then they have to expect disgruntled employees if they mess with it. Especially if the base salary is lower but these other compensations bring them to market rate.

 

[Lazarus]

No I would not. The 401K match is paid at her employer's discretion. They owe us nothing.

What a great employee! Willing to work for free!

The 401K and or Pension IS part of your pay. Willing to give a paycheck or two back for the good of the company?

 

[FIREd]

What a great employee! Willing to work for free!

The 401K and or Pension IS part of your pay. Willing to give a paycheck or two back for the good of the company?

I guess we don't feel as entitled as you do.

 

[growing_older]

Lots of matches have vesting schedules. Are you saying you would never work for those companies either? Or they have high ER funds. No working for them too? Imperfect 401k plans seem pretty common. I just try to figure how to make the best of it. At least the annual match is automatically trued up. No hassle to insure you have contributions in each and every paycheck.

 

[photoguy]

I worked for a company that did 401k matching once a year and frankly it sucked. But you have to look at your overall compensation. Although the 401k matching was terrible, they made up for it in salary / bonus.

 

[jazz4cash]

The once a yr employee contribution violates the principle of regular and consistent savings. It sends the wrong message to employees and negates the advantages of dollar cost averaging. It should be paid as it is earned. I think it's just a way for employers to save a few bucks by holding the contribution on thier books.

 

[Bestwifeever]

The once a yr employee contribution violates the principle of regular and consistent savings. It sends the wrong message to employees and negates the advantages of dollar cost averaging. It should be paid as it is earned. I think it's just a way for employers to save a few bucks by holding the contribution on thier books.

DH's company solved this thorny issue of when to make the match by stopping making the match at all.

 

[MichaelB]

Some additional thoughts from our last discussion on this http://www.early-retirement.org/forums/f28/ibm-switches-401k-match-to-annual-lump-sum-64029.html
The effort to reduce costs is decades long, this is just one more small step, and it is ongoing. It increases profitability, which helps drive equity prices higher, which benefits most of us here.

Seems to me that whatever policy an employer has, it is one more factor to take into consideration for retirement planning, and only reinforces the fact that our retirement is our responsiblity.

 

[SunsetSail]

In some states this move will tie employers' hands in timing of layoffs due to the potential cost of defending lawsuits regardless of whether they have merit. My company pays out 401(k) contributions annually (it is fully discretionary) and pays out management bonuses 2 months later. All major layoffs take place annually within a few months after the 401(k) contribution and after which the bonus accrues to the employee if the separation is not voluntary. This isn't a case of my employer being nice, it is a calculated decision based on costs and benefits.

I don't mind the annual contribution for employer matching. It is a is a very small part of my retirement plan, but regardless if I don't like any part of my compensation I am free to seek employment elsewhere.