December 16, 2012

How Frequently do Employers make 401k Contributions

Recently IBM announced that they would switch to making their 401k matching contributions on an annual basis.   That saves them some money and probably helps retain some people to the end of the year.   According to a news report on the topic only 9% of employers make 401k matches on an annual basis.   My employer is one of those companies as our retirement contribution is made annually.   Its not a 401k match but instead a contribution to a separate retirement account

In the WSJ article Benefits Leader Reins In 401(k)s they have a graphic from Aon Hewitt showing the distribution of employer 401k matches.   I'm reproducing that graph here :

Source : Aon Hewitt, WSJ


As you can see the vast majority of employers simply make the matches along with your regular paycheck.   However a minority of employers like IBM and my company make matches at different periods.

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4 comments:

  1. I work for IBM and I'm interested in any comments that come in on this subject.

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  2. How interesting! This post made me check out my own 401(k) plan; my small company just made a switch and our employee options are quite limited. The bottom line for employees is, we can participate, receive a match that slowly vests to 100% over 6 years and pay high administrative fees, or not participate at all.

    Turns out that the employer match has shifted from each pay period to sometime after the first quarter of the next year for the previous year. This has got to be one more cost-cutting measure for the company, which also no longer pays any admin costs toward the plan (it is picked up by the Administrating firm which really loads it up).

    As an employee, it doesn't impact whether or not I stay because I am already here. And it is still a net benefit to participate in the plan, although the benefit is not as great as it used to be. But it is good to know, and keep in mind going forward. Thanks, Jim, much appreciated!

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  3. My wife's company used to give the company match once per year and we hated it. Since so much power is taken away in a 401k I'm a fan of dollar cost averaging for these accounts.
    By giving a match once per year, you are basically stuck contributing all of your money into a fund at one time. This can cause problems if you do it right after a big run up in the market.
    They also used to give the match in the form of company stock. That was another annoyance, but a different topic.

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  4. @John, you may find this hard to swallow, but in 1980 gold was $800 an ounce. It went below $200 an ounce, and 32 years later today it is still worth less than $800/ounce in inflation-adjusted 1980 dollars. We'll see where next year leads.

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