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I want to understand if these policies would be considered typical, better than average, or below average.

An employer offers a matching contribution to 401K, details are:

  • 0% vested in employer contributions until year 2, then 20% vesting each year until year 6.
  • Max annual employer contribution $3,250 (3% of a 100K salary, this is a hard number and not a percentage however)
  • Employer matches 50% of deferrals up to the $3,250 limit
  • To receive the match employees must be

    1. Still employed on Dec. 31
    2. Have worked 1,000 hours in past calendar year
  • Match is paid out at end of Q1 the following year

For an employee with a start date of July 29 2019, working 40 hours per week, the effective breakdown is as follows.

  • First contribution will be paid out in Q2 of 2021 (19 months after hire date)
  • Max amount of first contribution is $3,250
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    That sounds like crazy bad terms to me, and for only 3% of salary too? I'd factor it in as no match for purposes of comparing jobs, and then you end up with a small bonus if you end up working there a long time.
    – Kevin
    Aug 12, 2019 at 17:48
  • The vesting schedule isn't so great. The last company I worked at offered 100% vesting after 3 years. If you think you'll still be at this position in 6 years I guess it wouldn't matter. 3% matching isn't all that great either but better than nothing. One employer I worked for matched 100% of the first 4 percent and 50% on the next 2 percent. Another contributed 5% yearly.
    – Rich
    Aug 12, 2019 at 18:24

1 Answer 1

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It's a good deal for people who aren't making so much (e.g. $3250 is a nice percentage of $40k) and seems to be specially designed to discourage short-term employment (because it can't kick in until 9-21 months after signing on).

Also, I'm sure that doesn't meet safe harbor requirements, so the test on highly-compensated employees will be in place, and that's probably even worse than the vesting rules because it will limit your own contributions.

I personally would stay away from any 401(k) "benefit" that does not qualify for safe harbor.

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    Whooops, forgot to mention it is a 50% match up to the $3,250 limit.
    – DJSpud
    Aug 12, 2019 at 18:47
  • Any match is better than no match at all. Granted, some employers match better than others, but it's still basically free money. @tHeMan didn't mention if he was considered highly compensated or not. He tossed out $100k in his example which wouldn't meet the dollar limit to be considered an HCE. If that's accurate, the non-discrimination test result wouldn't limit his contributions at all.
    – kazoni
    Sep 11, 2019 at 3:39
  • @kazoni: The IRS rule is based on "compensation", not "salary". Someone making $100k salary probably has $20k in annual non-salary benefits.(although with this stingy company it's possible OP doesn't).
    – Ben Voigt
    Sep 11, 2019 at 7:42
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    @kazoni: To look at your comment from another perspective, "A plan with a match is better than a plan with no match, if all other aspects of the plan are equal". But other aspects are never equal. A plan without a match but with high performing low fee investments can be better than a plan with a match but horrible investment options. A plan without a match and the full IRS-sanctioned annual contribution limit can be better than a plan with a match and a low employer-imposed contribution limit.
    – Ben Voigt
    Sep 11, 2019 at 16:17
  • @BenVoigt Very true on both counts. If his overall comp is past the HCE threshold then I completely agree with your analysis. It's hard to compare apples to apples between plans as when you're looking for work, they may tell you that part of the benefits is a retirement plan, but I doubt they'd give out the fund lineup unless you accepted employment.
    – kazoni
    Sep 11, 2019 at 16:21

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