I have a part time job and I was talking to my fellow co-worker who is full time. He gets benefits and 401k.
He was telling me he chose not to contribue to the plan, but the company puts 3%into the plan for him.
I was looking at the company plan they gave me when they hired me. I am not elibible for most of it as I’m only part time. But anyway it says they match the first three percent dollar for dollar. Then they match the next 2% half dollar for dollar. And that is it.
So in theory you could put in 5% of your paycheck. Interestingly enough your vested ASAP, which I’ve never seen before.
But he was showing me a letter they sent him that does show he has fund in a 401K from the company. But he says he doesn’t get anything taken out. He hasn’t even signed up for insurance.
I have never heard of any company that gives you free 401K, I guess it’s possible though. Has anyone else heard of this?
Our company has a typical 401K program (you contribute they match) but also has what looks like a 401K but is actually their pension program.
They automatically put money in it for you which is invested in similar things as the 401K fund. However, the only access to this money is if you retire as an employee of the company. If you leave or are dismissed before hand you get -0- of this money.
I’m thinking your friend is possibly looking at a pension type program, which if it is means he is not immediately vested.
The law permits a company to make contributions with or without matching. It’s not very common, obviously.
As for what’s really happening with your friend, it’s hard to say. So many people don’t understand the choices they made in regards to their own retirement accounts.
I have worked for two companies where you were vested immediately. The side benefit for them was that it made companies where I couldn’t participate immediately or get vested immediately look less desirable when considering leaving. In fact, I asked for an additional 3% at my current job because the plan rules didn’t allow me to contribute the first year. I got the pay raise and they changed the rules four months in.
My company recently eliminated their pension plan. They have replaced it by offering a 401k contribution separate from the match. It works exactly as your coworker described, although the percentage of the contribution varies based on years of service. This is not a pension plan – the money just becomes part of your existing 401k, similar to the match. If you don’t participate in the 401k plan on your own, they will set one up for you just to receive their contribution.
FYI, you are not limited to contributing to a 401k plan up to the point of the match. My company matches up to 5%, but you can contribute up to 30% of your salary, as long as you do not hit the maximum annual contribution limit ($17,000 for 2012).
I have unmatched 401K. The company makes an annual contribution, and I can add to that myself, but there is no ‘match’ going on. My limited personal knowledge of other plans shows that to be unusual, but it seems to be allowed. In this case I believe the company wants to control the amount of their contributions and keep it at a known amount instead of the unknown number based on employee contributions.
My employer does a matching of sorts with our 403b plan. If I contribute at least 5% of my salary to my 403b account, they will contribute 8% of my salary to my 403b account. I don’t get more from them if I contribute more. Vested 100% immediately, which I found astonishing when I first started working here.
I’ve worked for a couple of educational institutions with 403(b) plans. In all cases, the employer made a base contribution (3-5% of salary) without any action on my part; if I chose to contribute part of my own salary (up to another 3-5%), it would be matched by the employer.
I’m not sure if there are different requirements for 403(b) plans vs. for 401(k) plans, though.
Yeah, I’ve seen 401ks in which the employer gives 3% automatically, regardless of whether or not you put anything in, and then they match 0.5% of whatever % of your pay that you put in, up to 6%. So if you put in 6%, you get 6% from the company (3% automatic, and then 3% from the 0.5%:1% match they offer.)
My employer only does matching contributions, but with one exception. The quarterly profit sharing payments are made as one-time disbursements directly to the 401k, so in our case it would be likely to have money in a 401k without personal contributions as long as you happened to be working during a profitable quarter.
As Spoilervirgin mentions upthread, many companies are eliminating their defined benefit pension plans to remove risk from their balance sheets. To stay competitive in their benefits against other companies, some companies have begun supplementing their 401k plan benefits with discretionary employer contributions, that require nothing from the employee. This reduces the funding risk relative to a pension plan in that once the funds are in the individual 401k accounts, the employee bears the market risk asssociated with the underlying assets. In a traditional defined benefit pension plan, the company continues to bear the market risk of assets prior the distribution to employees after they reach retirement age. As many companies unfortunately discovered in late 2008 and 2009 when they saw 30-40% of their pension asset values disappear.
I believe this is becoming more common. It has something to do with being a safe-harbor for passing tests that have to be done to make sure that a plan doesn’t discriminate in favor of the highly paid.
Some companies have started handling their pensions this way - a defined contribution thing. Mine went from a straight 5% of my salary, put into a separate account no matter what (and credited with interest every year, to being handled strictly via the 401(k).
For folks who’ve been around longer, we’re grandfathered in at a total of 8% of our salary: the first 2% is free even if we don’t contribute, the remaining is a dollar-for-dollar up to 6% of our pay. Used to be 5% free (in the separate account), plus up to 3% at 50% matching (so if we put in 6% into the 401(k), we’d get 3%).
The total is the same, as long as I put in the full 6% of my pay, they just put more of the onus on us to save as well. And of course the growth isn’t guaranteed like the old plan was.
A percentage of a higher number is a higher number, so I don’t think your logic follows. Nor should it. Higher paid employees get higher retirement benefits. That’s the way it is/was with traditional pension plans, as well. There’s no more basis of discrimination there than there is for discrimination against paying your employees different wages.
I get 3% of all earnings in a 401k. Full stop. As does everyone at my company that earn more or less than me. Any of us can contribute whatever amount we choose out of our own salary, up to the IRS limitation of annual 401k deposits. Paying retirement benefits according to an employee’s (real or perceived) value to the company is not discrimination. It’s capitalism.
Believe me, I’m not in the “corporations are evil and the blood sucking execs are even eviler” camp. I had to do these kinds of tests about 15 years ago.
Group A puts in x% and gets a full match from the company
Group B doesn’t participate at all for whatever reason.
By some definition (logic has little to do with it), the company is discriminating in favor of A.
Yes, I think the claims of discrimination come not from lower compensated employees getting a lower match, but from the fact that many lower compensated employees don’t participate at all.
There are in fact IRS rules about contributions from “highly compensated employees.” If few of the less compensated employees participate, then the contributions of the highly compensated ones is limited.
At my workplace, every employee is immediately vested in their own contributions, but not vested in the employer-contributed portion until after two years. YMMV