The main client of the company I work for has by far the most insane 401K plan I’ve ever heard of. It’s sort of like the one krazykanuk has seen. This is in the healthcare industry (medical group), not financial sector:
100% match for up to 10% of gross compensation (since they’re all docs, they all get matching $ up to the full $17,500)
additional funding of 6.5% of salary is paid into their 401K as Profit Sharing contributions
all immediately vested
also have a defined benefit plan
My own firm has one of the worst I’ve heard of. They’ll match 50% of your contributions up to $600 (so only $300 max), 5 year vesting schedule. Just awful.
I didn’t expect to see this thread again… My new company has a much more generous plan then my old one. $1 for $1 match first 5% and an annual 5% of salary bonus contribution at year end. So all told get about 15% of salary in there every year since I put in the 5% to get full match. 3 yr vesting on the match money.
Part 1: 60% up to 7% is essentially a max company contribution of 4.2% which isn’t bad at all, it just sucks that you have to put up more of your own money to get the full match. What I don’t like about 401ks is usually the limited access to low cost/good funds.
Yours seems decent if you’re going to stay with the company for a while. By “pension plan” do you mean its a true defined benefit plan, or is it a fully employer paid defined contribution plan? Because thats what it reads like… I don’t know of many companies that still have a true defined benefit pension plan for new employees.
As far as defined benefit vs defined contribution… I have no clue. The language used in the contract says our “Pension Plan, is a cash balance plan … each year the company will credit your pension account with 3%-7% of your base pay and annual cash incentive, depending on your age.”
They actually got rid of it this past summer during my internship with them. They weren’t supposed to offer me the pension, but someone in management thought I deserved the pension since they got rid of the pension while I was technically an employee of the company… so they gave it to me. I could very well be the last person in the company to have qualified for their pension. According to an actuary who has my company as his client, he says the pension is fully funded too! Hopefully that’s good for me.
Quite honestly, I do not know a lot about 401k’s, but I will read heavily into them a lot once I start working.
Actually… they sent me another offer letter to compare what it would have been like without the pension that I just looked up. Offer:
80% up to 8% of salary.
Same performance cash incentive.
But then here’s the difference -
“You will also be eligible for an annual company−provided core retirement benefit contribution through the company’s SIP. This core retirement contribution is based upon your age and will range from 3% to 7% of your eligible pay” How the heck is that different than the offer with the Pension. Somehow, everyone hands down agrees the “Pension Offer” the one I accepted is better. HOW?! In this offer, effective match is 6.4% , but I can’t tell a difference in the benefit contribution vs pension!
This “pension” sounds like a fully company funded defined contribution plan. My old employer had a similar program (see my first post in this thread). Not that its a bad thing. I associate pension = defined benefit plan.
In case you aren’t 100% up to speed on this…
DC plans = they put in X dollars and they are done
DB plans = they promise to pay X dollars/% in retirement, referenced to a certain salary when you worked with the company. Almost nobody offers these plans anymore, but I have seen companies in the energy and utility industries offer them
So this doesn’t realllllly apply to this thread but I just ran a report of historical performance for all the available funds in my 401k and I realized that on a post expense basis, not a single fund beat the S&P500 over the past 5 years. Not a single effing one. Even the S&P index fund didn’t beat the S&P index because for some reason it carries an expense ratio of .67% vs the usual .1% (I think) SPY is. I hate 401k investment options so much.
Well, fortunately for you past performance does not indicate future results. I can probably name some of the funds in your plan. Barrow Hanley? I think they’re in every 401k these days. Any way, point is that the US equity market has been on a tear over the past 3 years: it is up 18.5% annualized. That is not sustainable. If you have conservative funds in your 401k then they probably lagging big time in that environment and probably lagging even worse recently (one year trailing is 20%).
Now that I think about it, trailing five years should look better because it includes the second half of 2008. Even a conservative fund should be about even with the benchmark on a trailing five year basis. So, that could be something to look at…how much are they lagging.
ETFs like SPY are certain to lag the benchmark. If they beat then that is not a good thing. It means they are poor at tracking the underlying index. 67 bps is ridic though.
That’s a really bizarre choice. They don’t really have much in the way of mutual fund assets, and the mutual fund versions of their strategies don’t use that brand name. They sub advise for other investment managers.
I would have gone with Growth Fund of America as the obvious choice.
Yeah, I know some people there and I know a lot of their money is in 401k, so it was on top of my mind. I don’t know anyone at Growth Fund of America…that’s a really funny name though. Should name an index fund Index Fund of America and watch the AUM roll in.
My old firm had it. (Or was it a SIMPLE?) I don’t really know what the difference is.
And 67 bps for an index fund? I had a 401k plan that had an S&P fund with and ER of 2 bps. Yes–you read that correctly. The expense ratio was two basis points.