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If your first scenario is true why would the second even need to exist? I'm not sure the first qualifies
Here is it is, a simple 3% match will not cut it
Quote:
A Non-Elective contribution to all eligible participants:
a minimum of 3% of pay
must include pay for the entire plan year regardless of the employee’s entry date in the plan
A matching contribution under one of the formulas listed below (a match is allocated only to employees who defer their own pay to the plan)
Basic Match: 4% of pay for participants who defer at least 5% of their pay. The Basic Match is structured as follows:
100% of the first 3% of pay that is contributed; and
50% of the next 2% of pay that is contributed
The Enhanced Match:
100% of the first 4% of pay that is contributed to the plan (this is the minimum required under this option)
100% of the first 6% of pay is the maximum allowed to still get a pass on the ACP test
Big believer in saving for retirement. I think plans should increase the match to entice a higher saving rate. How about $.50 on the dollar for the first 3%, $.75 next 3% and $1.00 on the final 3%. Now we are talking about a retirement nest egg.
Big believer in saving for retirement. I think plans should increase the match to entice a higher saving rate. How about $.50 on the dollar for the first 3%, $.75 next 3% and $1.00 on the final 3%. Now we are talking about a retirement nest egg.
There are plans like that. Less common, however.
I worked at a company that put in 2% (straight, no match). Then $.50 on the dollar for the first 4% and $1 for between 4-6%.
My company matches $1 for $1 up to 5%, so I get an effective 10% savings rate, but I also am fortunate enough to have a moderate sized pension plan to go with it. Nothing huge, but it'll be equivilent to a nice part time job paycheck in retirement. My wife also has a decent 401K plan, although she only works part time, so her balance isn't quite what it would be if she were earning full time wages.
I also got my 18 year old daughter to recently start participating in the 401K at her part time job by introducing her to an online compounding calculator and showing her the importance of starting early on. She's contributing 8% of her part time pay and get a 2% match, so again 10% - not too bad for a freshman in college! I'm pretty proud of the fact that I was able to convince her to contribute, and even prouder that she saw the value in Dad's advice about starting early. More parents should stress the importance of saving/investing early on in their childrens life. I sure wish that I had known then what I know now!
Yeah yeah. Everybody knows that. You didn't answer the question. How do you get low earners to participate?
The entire reason to provide the match is not for the social good or so that government will have a lessor need to provide social security. It is to entice low wage owners that if they do with a bit less money now then they will get free money for the future. Thus if they don't participate then they are not getting all of their's as they have left the free money in the bosses hands. "Cheapness" or greed of providing a match for 3% versus 5% has nothing to do with it
So companies will only provide a match to the point where enough low earners decide they will participate. To get away from having to provide a match for everyone we are now seeing companies automatically enrolling everyone and giving them 1% and providing no match so the high earners don't get the 5% match of their higher contributions and the plan still qualifies because that lowest earner is in the plan and the 401K is not just providing a tax shelter for "the rich"
My company matches 50% of your contribution up to the 401k limit so in 2014, if you put in $17,500 they will match $8750 (or any lower amount if you don't contribute the max). This is regardless of salary.
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