Human psychology at work: lower salary for higher 401k match

[humandraydel]

Apparently people are willing to accept a lower salary for increased 401k match. I guess it never occurred to them that they can have that today by simply contributing that money themselves?! No, they want a 5% lower salary for a 5% increase in 401k match!

[BuckyBadger]

You're missing a very important point for some people - namely people who will be maxing out their 401k.

The government limits the amount an employee can contribute to a 401k/403b. This year it was $17,500. Once I reach that (and assuming I'm also maxing out my IRA space), there is no way to get more money into that tax advantaged space other than with an employer contribution or employer match.

That contributed money is actually MORE valuable than cash in hand because it's tax advantaged AND it's money you couldn't otherwise have squirrel away in a tax advantaged account.

I would accept a lower salary for a bigger employer contribution. In fact, I did that when I took my last job. But I now get an extra $13,000 put into my 403b which is MUCH more valuable to me down the road than and extra $13,000 in salary (that would be subject to all my normal taxes) would be right now.

This may only apply to people who save a lot for retirement, but employer 401k/403b contributions are a gigantic benefit that is often better than a salary increase.

[Reggie]

Buckey's right. I managed to get my bonuses in 401k contributions. They are worth significantly more than cash to me that is taxable!

[BuckyBadger]

Buckey's right. I managed to get my bonuses in 401k contributions. They are worth significantly more than cash to me that is taxable!

My husband's bonuses also come as 401k contributions. We're much happier than if it were given to him as salary.

[humandraydel]

This may only apply to people who save a lot for retirement, but employer 401k/403b contributions are a gigantic benefit that is often better than a salary increase.

Yeah I'm aware of that but the article states 43% of people would do this. I'd be surprised if all of the 43% are maxing out their 401k. I do max mine, so I would gladly do this.

[BuckyBadger]

Yeah I'm aware of that but the article states 43% of people would do this. I'd be surprised if all of the 43% are maxing out their 401k. I do max mine, so I would gladly do this.

It's still worth between 25 and 40% more than an equivalent salary increase would be worth, though. That doesn't matter if you max out or not.

[disneysteve]

I'm in the roughly 50% of Americans who don't have a 401k. I would gladly take a smaller salary in exchange for a 401k plan with a match.

[feh]

Folks are assuming a dollar-for-dollar exchange between salary and 401K contribution. I don't believe the article states that.

[snafu]

Can we presume people are now more aware of their need to have a retirement plan in place and fully fund it? 5% tax free money has potential to earn more than 5% if investments are low lost, low fee, well managed over the length of your career. Sure there will be bumps but have you truly looked at where the DOW was in 2009 and where it is today? Those who choose to buy a new car at 7% interest as a result of a 5% increase in salary have a depreciating asset, often owing more than it's KBB value in the same time frame.

[Like2Plan]

I tend to fall into the other percentage who would rather get the cash (if it is a choice between the two). The reason is I have seen a couple of the things employers can do that would prevent an employee from actually receiving the match.

One is the company can change the match amount. DH used to work for a company that offered a retirement. They froze the retirement. To make up for it, the company would make an additional bonus contribution to the 401K the following spring (if still employed at that time). That lasted for one year and then no more bonus.

A lot of companies have a vesting requirement--so if you leave before you are fully vested you don't get the full match.

Some companies have gone to paying the match at the end of the year. So, if you leave before the end of the year--no match.

Here is a quote from the WSJ Dec 6, 2012, "Starting next year, IBM's contributions, which generally range from 6% to 10% of pay, will take place Dec. 31. Workers who leave the company before Dec. 15 won't qualify for the match, unless they retire. "

[Baby_nurse]

I'm pretty sure that at least some of those people might have enough self awareness to know that 5% in their paycheck might not make it to their own retirement savings because of poor impulse control. A guaranteed amount in a 401k is better than gambling you won't spend the same amount at Best Buy.