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Considering we’re amidst the Great Resignation—in which 50% of employees are looking for new jobs—employers are scrambling to retain talent through perks like bonuses, increased pay, and 401(k) plans. But 401(k)s plans vary based on whether employers will match your contributions, and by how much. This leads to an obvious question: What does an above-average plan even look like?
Most companies that offer 401(k)s will match your contributions
An XpertHR survey reveals that of the employers that offer 401(k) plans, 82% offer a matching contribution. This might be the most important aspect of 401(k)s when shopping for benefits, as your employer is basically offering you free money to invest for your retirement. Since this money compounds with interest over time, the difference in what you’ll earn with employer matching can be stark. As MoneyRates explains:
Consider two employees: Jane and Jack. Each makes $50,000 and contributes 6% of that annually to their company 401(k) plan. They each earn similar investment returns of 5% a year. However, Jane’s employer has a 50% match, while Jack’s has none.
At the end of 20 years, Jane would have accumulated $152,517 in her 401(k) plan and Jack’s balance would be worth $50,839 less, at $101,678.
Remember, both of them contributed the same annual amounts and earned the same investment returns, but the existence of an employer match made a significant difference in their retirement savings.
Of course, employer matching plans can vary in how they’re paid out—many will match up to a certain percentage of your total earnings, or as a set percentage of the employee’s contribution (like 50% for each dollar you add), or they might contribute a flat dollar amount every year instead of a percentage of your earnings. According to the survey, most plans (71%) will offer a 100% match for at least up to 1% of your total pay.
Either way, employer matching is always good, and you should look for a plan that lets you max out what they’re willing to pay out (it’s worth mentioning here that the contribution limit for 2021 is $19,500, although for workers over the age 50, it’s a total of $26,000).
While most companies match contributions, it’s not always right away
When considering a job offer, another consideration is how quickly employer matching actually kicks in with a given 401(k) plan, as many employers defer matching for up to six years (the IRS requires graduated matching plans to be fully vested by that time). As the survey reveals, almost a third of employers offer matching right away:
- No wait (28%)
- Up to one year (13%),
- up to two years (7%),
- up to three years (14%),
- up to four years (6%),
- up to five years (17%),
- up to six years (10%)
- (The remaining 5% were not sure).
What this all means is that an above-average 401(k) plan will offer full employer matching (at least up to 1% of your pay), and that employer matching will kick in right away.
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Bottom line
It’s understandable that people tend to focus on salary when considering job offers—there are bills to pay, after all. But benefits matter, too. For example: An employer might not offer a high salary but they could also offer a great 401(k) plan, which might offset or even exceed the long-term earnings compared to an employer that, say, offers a higher salary with no employee matching.
You’ll want to compare the numbers for both salary and benefits when considering a potential employer, but as a benchmark, any job offer with a 401(k) plan that has immediate employee matching is a good place to start.
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