COMP NEWS – A recent survey shows that most employees rely on their employer’s 401(k) plan for their retirement. However, many may not realize that 401(k) employer matches are not always instantly accessible.
Nevertheless, company 401(k) plan matches are identified as important to reaching retirement goals by 62% of workers, according to research from Principal Financial Group.
Vesting schedules — the length of time you must be at an employer for its contributions to be 100% yours — can be up to six years. About 41% of employers that match employee contributions provide immediate vesting, according to the council. About 16% make workers wait six years before the matches are entirely theirs.
The survey also showed that the second most important factor employees consider for their retirement is a well-balanced investment portfolio.
Having a balanced investment portfolio ranked second (52%) in importance for reaching retirement goals in the Principal survey, and getting financial advice or guidance was third (51%).
Most 401(k) plans contribute directly to the worker’s retirement savings. The most common contribution plan is matching 50% of what the employee contributes. Then, vesting gradually takes place over several years. This form of vesting can serve to encourage higher rates of employee attrition.
The most common matching formula is 50 cents for each dollar contributed by the employee, up to 6% of pay, the council’s research shows.
Vesting either happens gradually — e.g., 20% of the match is credited after one year, 40% after two years, and so on — or occurs all at once after the vesting period. Of course, any contributions you make to your account are always 100% yours.
This survey has revealed that employees consider the employer 401(k) match as the most important factor in allowing them to reach their retirement goals. However, it is important for employees to understand their specific vesting schedule when making decisions about changing jobs.
To read more about 401(k) employer matches, click here.
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