You wrote killer cover letters, spruced up your resume, made it through the interview gauntlet, and have that most coveted of job search goals—multiple offers. Now it’s decision time. Where will you place your flag and invest your time, talent, and sweat for the foreseeable future? Chief among your considerations will likely be that potential employer’s retirement plan.
Most employers offer one of three basic options:
Defined benefit plans. Otherwise known as traditional pension plans, these are less common today (fewer than 30 percent of employers offer them) but provide the most value—employer contributions that guarantee monthly income in retirement.
Defined contribution plans. The most common option, these include 401(k), 403(b), or 457(b) plans. Employees save and contribute a certain amount of pretax dollars from their paychecks and manage their investment. The employer will often match a certain percentage of this contribution.
Individual retirement accounts (IRAs). There are many varieties of IRAs with differing contribution limits and employer matches. The balances on these accounts are portable, meaning they can be reinvested into other financial properties at any time.
Since the vast majority of employers offer defined contribution plans, we will explore further the ideal qualities you should expect from them.
Once your first paycheck arrives in your inbox, you should save a portion into your 401(k) and grow your contribution incrementally every year. Some employers impose a waiting period (occasionally as long as a year), but many allow immediate eligibility.
A majority of employers participate in their defined contribution plans, but waiting periods can apply here as well, typically six months to a year of service.
Generous (and user-friendly) employer match
This is where your employer can stand out from the crowd. A generous match to monthly employee contributions can be a significant draw to a position and a compelling reason to stick around long term. Economically, it often makes more sense for a business to invest generously in its current staff rather than throw money away hiring and training new recruits.
The level of mandated employee contribution lives anywhere from 3-7 percent, with employer matches typically being 50 cents on the dollar, and some matching dollar for dollar.
Some organizations will contribute to your 401(k) or 403(b) without any mandated participation from employees, typically around 4.5 percent of base salary, but some as high as 10 percent.
Reasonable vesting schedule
In the context of a retirement plan, “vesting schedule” refers to the time frame in which you take ownership of the account from your employer. For each year you are employed with that company, you own a greater portion of the account.
Some plans offer immediate vesting, where you keep all of your employer’s contributions whenever you decide it’s time to move on to your next gig, but most offer options such as “cliff vesting” (you need to work at the company for a set number of years) or “graded vesting” (your portion of the account increases with years of service).
Thoughtful investment options and guidance
Aside from those employed within the finance industry, the vast majority of workers are not investment experts. Rather than let their staff flounder in the mysterious ocean of stocks, bonds, and annuities, most employer-sponsored retirement plans include in-house advice or third-party experts. Their guidance, coupled with modern tools like spreadsheet templates and online calendars, can give employees peace of mind, inspiring trust and loyalty.
Modern employees, particularly digital natives who now make up the majority of the workforce, have come to expect user-friendly online and mobile tools for most of their life activities. Retirement investments are no exception. Whether it’s to adjust monthly withdrawals, apply for a loan, or re-evaluate a portfolio’s performance, functions that used to require an in-person meeting can now be accomplished with a simple tap or click.
A plan that works for you
Employers across industries are in a sprint to attract and retain the best and brightest, a race that shows no signs of slowing down this year. As you examine your employer’s retirement plan, see how it stacks up within these criteria. If it falls short, it may be time to raise your voice, or think about a change.