5 ms·

Haha, nope. You have the "opportunity" to contribute to a 401k, and if you use the company's (poorly run) 401k option, they may decide to match up to a percent

Haha, nope. You have the "opportunity" to contribute to a 401k, and if you use the company's (poorly run) 401k option, they may decide to match up to a percentage of your contribution. For instance, I contribute 10% of my paycheck towards the 401k, my employer matches 4% of that. That's it. And I work in IT for a Fortune 500 company.

uw_rob 9y ago
Just to make sure I am correct, your 401k gets matched with 0.004 of your total pay? Thanks
- kasey_junk 9y ago
  No. The way it usually works is you can contribute up to X% of your pay tax advantaged (with a hard dollar cap) to your 401k. The company can match up to Y% pay. What he is suggesting is that he can contribute 10%. Everything he contributes up to 4% is matched by his company (ie a 4% pay increase). Usually its a little more complicated than that. Like they'll match 1:1 the first 2% and then 1:2 the next 2% for a total of 3% matching funds.
  - maaaats 9y ago
    What are typical matches? In Norway there are no matches. The company just have to pay 2-7% of your salary to your fund each year. For tech jobs it's mostly at the top of the range.
    - kasey_junk 9y ago
      Its fairly variant. As far as I can tell (and I'm no expert) the max is either non-existent or so high that i've never encountered it in the wild. Between 2-5% seems common in my experience. The companies do not have to do this. It is purely optional, though there is a tax advantage I believe. Most "professionals" have the option at their company. A bigger problem is that the 401k offerings are fairly bad usually. The people picking them are HR staffers who frequently don't have experience in finance, so the plans frequently have murderously high expense ratios. Even to the point where some companies repackage Vanguard funds that you can get on the open market for 10x less.
      - Sleeep 9y ago
        There is a maximum total contribution. https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit https://www.irs.gov/retirement-plans/401k-plans-deferrals-an... total employee and employer contributions (including forfeitures) - the lesser of 100% of an employee’s compensation or $54,000 for 2017 ($53,000 for 2015 and 2016 not including "catch-up" elective deferrals of $6,000 in 2015 - 2017 for employees age 50 or older) (IRC section 415(c)) So the max is basically 200% match of the individual's contribution, which is maxed out at $18,000 for an individual under 50.
    - Sleeep 9y ago
      That varies by employer. For professional salaried jobs usually 3-6% from my experience. Many companies are doing odd things now with half percentage matching. So they will say they match all of the first 4% and then the half of the next 2%.
    - loeg 9y ago
      It varies widely. I have had nominal 3-6% matching, but it was capped at an absolute dollar amount. That amount made the effective match more like 1.8-3.8%.
- deleted 9y ago
  [deleted]
- ruste 9y ago
  Likely 4% of his paycheck or 0.0385 of total pay after matching.
chrisseaton 9y ago
But a 401k /is/ a pension. > In the United States, a 401(k) plan is [a] tax-qualified, defined-contribution pension account https://en.wikipedia.org/wiki/401(k) https://en.wikipedia.org/wiki/401(k)
- loeg 9y ago
  A 401(k) (defined contribution) is not the common parlance "pension" (which would be defined benefit).
  - chrisseaton 9y ago
    So why does Wikipedia use the 'pension' terminology?
    - nostrademons 9y ago
      Wikipedia has more than just an American audience. "Pension" in many other countries means any form of retirement plan; that's the definition that the Wikipedia article on pensions describes. In colloquial usage in the U.S, it explicitly means defined-benefit plans to distinguish them from 401(k)s and other retirement savings accounts, which are defined-contribution.
      - chrisseaton 9y ago
        Well it's more confusing that helpful then! Because as a foreigner when I look up what a 401(k) is and it tells me it's a pension, and then everyone tells me it's not a pension, I don't know what's going on!
        nostrademons 9y ago
        This is one of those things where details matter, and that's why terminology is different. It's like if I went to England and someone told me "Parliament is like Congress" and so I go around thinking "Oh, you have two houses just like us, and you have political parties and elected representatives, must be just the same", blissfully ignorant that the way parliament operates is very different from how the U.S. Congress operates, and the different mechanics lead to very different emergent effects (I had no idea what this coalition government thing in the last election meant, for example; such a concept doesn't exist in the U.S.). Whether you have a pension or a 401(k) has a very big impact in how you organize your career in the U.S. If you have a pension, you're strongly incentivized to stay with one employer for a lifetime, because you lose it if you leave and your benefit usually depends upon length of service. That in turn means that you don't care how your resume looks to the outside world, you don't invest as much time in professional development, and you generally accept whatever advancement schedule is available in the organization. If you have a 401(k), you're strongly incentivized to maximize your earning potential, because you only get out of it what you put into it (plus investment returns). That usually means switching jobs, which means you need to consider how your professional experiences will look to the outside world. It means that you need to be constantly up-to-date with how the industry is changing around you, and with how the financial markets are doing, and manage your own finances & career development. On the plus side, you take your 401(k) with you if you quit or move, and so you have greater flexibility. And you're not exposed to the risk that your employer could just die and take your pension with it. You are exposed to the risk of the stock market crashing, though. Because life strategies are so different based on the different retirement schemes, people will assume certain things about you if you say you have a pension, and they'll assume other things if you talk about your 401(k). If you say you have a pension when it's really a 401(k), those assumptions are likely wrong, which leads to awkwardness all around. That's why they're different terms in colloquial usage.
zdragnar 9y ago
Ouch. I haven't worked at a place that contributed less than 6%; my current employer also adds a flat 5% to a separate pension so people don't get bit by the maximum tax free limit (as opposed to simply matching more than 6%)
- loeg 9y ago
  Matching isn't affected by the tax deductible contribution limit. There is a separate and much higher limit for employer contributions (~$35k/year).

uw_rob 9y ago

Just to make sure I am correct, your 401k gets matched with 0.004 of your total pay? Thanks

kasey_junk 9y ago
No. The way it usually works is you can contribute up to X% of your pay tax advantaged (with a hard dollar cap) to your 401k. The company can match up to Y% pay. What he is suggesting is that he can contribute 10%. Everything he contributes up to 4% is matched by his company (ie a 4% pay increase). Usually its a little more complicated than that. Like they'll match 1:1 the first 2% and then 1:2 the next 2% for a total of 3% matching funds.
- maaaats 9y ago
  What are typical matches? In Norway there are no matches. The company just have to pay 2-7% of your salary to your fund each year. For tech jobs it's mostly at the top of the range.
  - kasey_junk 9y ago
    Its fairly variant. As far as I can tell (and I'm no expert) the max is either non-existent or so high that i've never encountered it in the wild. Between 2-5% seems common in my experience. The companies do not have to do this. It is purely optional, though there is a tax advantage I believe. Most "professionals" have the option at their company. A bigger problem is that the 401k offerings are fairly bad usually. The people picking them are HR staffers who frequently don't have experience in finance, so the plans frequently have murderously high expense ratios. Even to the point where some companies repackage Vanguard funds that you can get on the open market for 10x less.
    - Sleeep 9y ago
      There is a maximum total contribution. https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit https://www.irs.gov/retirement-plans/401k-plans-deferrals-an... total employee and employer contributions (including forfeitures) - the lesser of 100% of an employee’s compensation or $54,000 for 2017 ($53,000 for 2015 and 2016 not including "catch-up" elective deferrals of $6,000 in 2015 - 2017 for employees age 50 or older) (IRC section 415(c)) So the max is basically 200% match of the individual's contribution, which is maxed out at $18,000 for an individual under 50.
  - Sleeep 9y ago
    That varies by employer. For professional salaried jobs usually 3-6% from my experience. Many companies are doing odd things now with half percentage matching. So they will say they match all of the first 4% and then the half of the next 2%.
  - loeg 9y ago
    It varies widely. I have had nominal 3-6% matching, but it was capped at an absolute dollar amount. That amount made the effective match more like 1.8-3.8%.
deleted 9y ago
[deleted]
ruste 9y ago
Likely 4% of his paycheck or 0.0385 of total pay after matching.

chrisseaton 9y ago

But a 401k /is/ a pension. > In the United States, a 401(k) plan is [a] tax-qualified, defined-contribution pension account https://en.wikipedia.org/wiki/401(k) https://en.wikipedia.org/wiki/401(k)

loeg 9y ago
A 401(k) (defined contribution) is not the common parlance "pension" (which would be defined benefit).
- chrisseaton 9y ago
  So why does Wikipedia use the 'pension' terminology?
  - nostrademons 9y ago
    Wikipedia has more than just an American audience. "Pension" in many other countries means any form of retirement plan; that's the definition that the Wikipedia article on pensions describes. In colloquial usage in the U.S, it explicitly means defined-benefit plans to distinguish them from 401(k)s and other retirement savings accounts, which are defined-contribution.
    - chrisseaton 9y ago
      Well it's more confusing that helpful then! Because as a foreigner when I look up what a 401(k) is and it tells me it's a pension, and then everyone tells me it's not a pension, I don't know what's going on!
      - nostrademons 9y ago
        This is one of those things where details matter, and that's why terminology is different. It's like if I went to England and someone told me "Parliament is like Congress" and so I go around thinking "Oh, you have two houses just like us, and you have political parties and elected representatives, must be just the same", blissfully ignorant that the way parliament operates is very different from how the U.S. Congress operates, and the different mechanics lead to very different emergent effects (I had no idea what this coalition government thing in the last election meant, for example; such a concept doesn't exist in the U.S.). Whether you have a pension or a 401(k) has a very big impact in how you organize your career in the U.S. If you have a pension, you're strongly incentivized to stay with one employer for a lifetime, because you lose it if you leave and your benefit usually depends upon length of service. That in turn means that you don't care how your resume looks to the outside world, you don't invest as much time in professional development, and you generally accept whatever advancement schedule is available in the organization. If you have a 401(k), you're strongly incentivized to maximize your earning potential, because you only get out of it what you put into it (plus investment returns). That usually means switching jobs, which means you need to consider how your professional experiences will look to the outside world. It means that you need to be constantly up-to-date with how the industry is changing around you, and with how the financial markets are doing, and manage your own finances & career development. On the plus side, you take your 401(k) with you if you quit or move, and so you have greater flexibility. And you're not exposed to the risk that your employer could just die and take your pension with it. You are exposed to the risk of the stock market crashing, though. Because life strategies are so different based on the different retirement schemes, people will assume certain things about you if you say you have a pension, and they'll assume other things if you talk about your 401(k). If you say you have a pension when it's really a 401(k), those assumptions are likely wrong, which leads to awkwardness all around. That's why they're different terms in colloquial usage.

zdragnar 9y ago

Ouch. I haven't worked at a place that contributed less than 6%; my current employer also adds a flat 5% to a separate pension so people don't get bit by the maximum tax free limit (as opposed to simply matching more than 6%)

loeg 9y ago
Matching isn't affected by the tax deductible contribution limit. There is a separate and much higher limit for employer contributions (~$35k/year).