401k advice

People who favor load funds sometimes claim that they provide advice. One wonders how advice is extended to everybody in your company who has to choose from those 12 funds. All 300 of you should get together and have a serious discussion with senior management as to why those particular funds were chosen in the first place.

My company doesn't at all ever get close to contributing 50% or dollar for a dollar. In fact, the number changes every year with this year being 7% but they do contribute 7% of the entire amount invested by the employee (max $15,500 this year). In better performance years, they have gone up to 25%

Are these numbers on the low side?

I'd say it's probably more common for employers not to match at all if they aren't going to offer something like a 50% match on the first 5% of your salary. OTOH, if you max out your contribution, even 7% on the entire amount of your contribution isn't that shabby in comparison. It's at least enough to cover the sales load on the funds in the plan. I'd stick by my earlier advice of cherry-picking the best fund(s) from your 401(K) plan and putting the rest of your retirement savings in a Roth IRA instead, unless you have so much extra money to invest that you really need to max out your pre-tax contributions to the 401(K) plan, too.

-Sandra the cynic

I've given this more thought, and googled a bit. Is this fund from 'American Funds'? They do carry the front end load, as well as the usual annual expenses. This is the other piece of the puzzle we are missing here, what are the expenses of the funds? With such low matching (if we understand the numbers correctly) the expense ratio can easily wipe out the tax advantage of the 401(k) account. I wrote an article on my site at

on that tradeoff, deferral vs expenses. The decision you make would also depend on other details you haven't provided. If you are in a relatively low tax bracket, the 401(k) can actually put you in a higher bracket at retirement. On the flip side, if you are in the 28% or higher, but have little pretax savings, the tax benefit can be worthwhile. More details would help guide you. JOE

I think the matching rates vary from industry to industry, but are fairly consistent within an industry. Auto companies have suspended matching during their troubled times, while oil companies are int he 6-8% range.

Rick - ExxonMobil matches the first 6% deposited dollar for dollar. I use the wording "100% match on the first 6% one deposits". My employer happens to offer 100% match on the first 5%.

The OP wrote "they do contribute 7% of the entire amount invested by the employee". I read this to mean that if OP puts in $10000, he gets a $700 match. The difference between what Exxon gets and what the OP implied is quite a bit. This is one of those cases that precision of wording is pretty important to our understanding.

JOE

Guys, I did some calculations and 7% match is not bad at all

Example:

- Say a company matches 50% for the first 6% of the employee's contribution and the employee contributes the max for 2007 which is $15,500. That's a $465 match from the company. Even if the company matches dollar for a dollar, it's $930

- My company matches 7% on the ENTIRE AMOUNT. Hence, it's $1085 making it a better deal

Am I missing something here? Isn't my company's match better than other companies that match dollar for a dollar to 6% of the employee's contribution?

Joe, when you say Exxon matches 6% of one's salary dollar for a dollar, what happens after that? Do they match anything for further contribution over 6%?

thx

Sam wrote on [Wed, 20 Jun 2007 11:20:44 -0500]:

Companies don't match 50% of the furst 6% of the contribution, they match 50% of the first 6% of salary. So, if you make 100,000 a year and put 6% into your 401(k), $6,000, they company puts in 50% of that, which would be 3,000

Yes, you are missing something here.

Sam wrote on [Wed, 20 Jun 2007 11:22:44 -0500]:

No, that's all they match.

An Exxon employee, with 100% match on first 6%, would, on an income of $75000, get $4500 matched by just saving his own $4500. If the match is only 50%, as you suggest in your example, that's $2250 for the $4500. The difference is this: In the plans I describe, there is a large match,

50 or 100%, but it caps to the first 5 or 6% of the employee's income. All of your deposit is matched, so you must hit the $15500 to maximize your employer matching. As you say, they give you $1085. The first $1085 I put in is matched by $1085. JOE

My recollection is that Exxon and other large oil companies still have a pension of @1.6% times years of service. A "lifer" would get a 1/2 to 2/3 pension. Most smaller oil companies and oil service companies are solely 401K/stock sharing/bonus. So their 401K matching is just a sweetener.

Does any website track the pension & 401K policies of major companies? I read such in Money magazine about a decade ago. It basically showed companies within an industry were similar, but there could be a lot of variation among different industries.

My thoughts:

- this is a very bad scheme. The costs will wipe out any performance, compared to holding an index fund outside your 401k, in a taxable account

- you only want to invest up to the company matching. If it is 7% as you say ie $7 for every $100 you invest, this really is not enough to offset the impact long term of the higher costs. You probably don't want to put more than the bare minimum in this

(more normal industry practice would be a '7% match ie you put in $100, up to 7% of you gross salary, and the company puts in $100)

- you're better investing your money in an IRA, offered by a low cost manager like Vanguard, and even in a taxable account (a tax managed index fund)

I have some more thoughts on that if you want to email me (darkness39(at)yahoo(dot)com).