How To Tell If Your Job Has A Shitty Retirement Plan

An alternate, optimistic title for this post could be How To Tell If You Have An Enlightened Employer.

 

1. Does your job offer a 401(k), 403(b), 457, SIMPLE IRA, etc? (if not, you have worse than a shitty plan)

If the answer is yes, right on. If the answer is no, I’m sorry. Maybe you could rally your work friends and tell your boss you would value their help with facilitating retirement savings. Because unless you die first, it is highly probable that at some point in the future you will not have a job and the steady paycheck that comes with it.

 

2. Does your employer match contributions? (pretty sweet if they do…)

This means you add money to your retirement account, and so does your employer, but only because you decided to first. The amount and generosity of the match can vary. Here are some examples:

  • You put in 4% of your salary, and your company also puts in 4% of your salary
  • You put in 6% of your salary, and your company puts half that (read: company will match 50% up to 6% of your salary)
  • You put in $6,000 of your salary and your company also puts in $6,000

What I’m saying is, no matter the flavor (%, $, a portion of a % or $), if you’re getting matched by your job, you’ve got yourself a nice deal.

 

3. Does the retirement plan have a profit-sharing component? (this is a great bonus, but relatively rare)

Profit sharing is great—you don’t have to do anything other than work at the company (usually full-time) for a specified period of time (e.g. at least 90 days, 1 year, 1 full calendar year) to have money deposited into your retirement account. This is different from a match, where you had to decide to contribute a piece of your paycheck in order for your employer to pay attention.

If your job doesn’t offer profit sharing, whatever. But if you have it, appreciate it.

 

4. Does your employer make a safe harbor contribution? (again, a nice bonus, but not super common)

Retirement plans have to follow lots of rules. Among them, they need to make sure everyone is joining in the fun, not just the highly paid members of the team. A safe harbor contribution is usually 2-3% and is required if your plan favors certain participants over others.

This shit is actually incredibly complicated, but the point is: if your company makes a safe harbor contribution, you’re getting more money in your retirement account! No strings attached!

 

5. Is your retirement account held with an inexpensive broker? (unfortunately, a lot of companies sign up for retirements plans administered by insurance companies)

If your monthly or quarterly account statements are stamped with one of these logos, chances are you should take your HR manager out for a drink:

One of the absolute most important things about retirement plans is that they be affordable. Don’t get stuck in a retirement plan administered by an insurance company, where the mutual fund fees are ridiculously high. Like, an S&P 500 index fund that costs .85% per year at John Hancock. You can get that same exact fund at Schwab for .04%.

Expensive mutual funds destroy value.

 

6. Does your employer pay the administrative costs of the plan? (another rare benefit!)

We already talked about mutual fund fees, but there are usually other fees, too. Things like participant fees or asset-based fees. It’s worth finding out if your employer writes a check from their bank account to pay for these expenses, or if it’s deducted directly from your retirement savings. I’ve seen both, and the former is what you, as the employee, hopes, and dreams for.

 

My next 20 blog posts could be about retirement plans, so this is really only the beginning of a complex subject. But, at the least, should give you a pretty good indication of how lush your retirement plan is at work, and some clarifying questions to ask at the next employee benefits seminar.

 

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