Starting work with a new employer can be overwhelming.

New people to meet, a new boss to get used to, new responsibilities to learn.

But one of the most overlooked aspects is understanding the new retirement benefits package.

Maybe it lists new retirement accounts you’re not familiar with, or terms you haven’t heard before.

Here I want to break down some of the most common information so you can be ready.

The MVP

The best thing you can see on a list of benefits is an employer match.

An employer match is when your employer will match your retirement contributions.

Often, this will be up to a certain percent, such as a 100% match up to 4% (so they will match up to 4% of your paycheck) or 50% up to 6% (so they will match up to 3% of your paycheck).

A “good” match is 4% or above.

Keep in mind that to take advantage of an employer match, you also have to contribute to the account.

For example, if your employer offers a 50% match up to 6% for your 401k, you have to contribute 6% of your paycheck to your 401k, and your employer will contribute 3% themselves.

An employer match is an immediate, guaranteed, 100% return on investment. Take advantage of it whenever possible.

Other Terms

• 401(a), 403(b), 401(k), 457: All of these terms refer to very similar accounts, which only differ by eligibility based on your employer. These are all tax-advantaged retirement accounts that take pre-tax contributions. Basically, they’re powerful accounts for long-term growth aimed at retirement. Whichever form is offered to you, it’s worth taking advantage of (especially if a match is offered).

• Pooled Employer Plan: Essentially, a pooled 401(k) plan. This makes 401(k) management simpler for the employer, but shouldn’t affect employees.

• Vesting Period: How long you have to work at the company before you own any employer contributions. If you leave before your vesting period ends, you may lose all or part of your employer’s contributions. You should never lose access to your own contributions, only your employer’s contributions. This period may have a gradient (i.e. 20% at year 1, 40% at year 2, etc.), so keep that in mind before switching jobs.

• Profit-Sharing Plans (PSPs): Rewards employees for positive company performance. The better the company does, the higher the contributions.

• Bonuses: Bonuses can vary widely. Anything from employee performance-based to employer performance-based to set amounts. Keep in mind that bonuses are usually paid out as lump sums, and that they count toward your taxable income just like your paychecks.

• Automatic Contributions: Many companies are beginning to enroll you in retirement contributions automatically. Keep this in mind before you start adding to your contributions.

Until next week

Best,
Evan

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