I've only ever been employed at companies that fund my 401k by deducting a percentage of my pay (that I set), and match up to a certain percent themselves. The 401k is then managed by a third-party that my employer has chosen. This is all I've ever been familiar with.
I have a meeting with my new employer in a few days to begin the onboarding process, and I intend to receive more specific information on how this all works. At this point, I'm looking for a more general understanding on how a plan like this works, some pros and cons, or other useful information so that I can go into the meeting at least knowing what questions I should be asking about the plan.
New employer has a "fully company-funded profit sharing plan up to 15% of the employees salary, with no match required by the employee, into a self-managed 401k". Thoughts?
byu/Derpsteppin inpersonalfinance
Posted by Derpsteppin
4 Comments
My first question is how the “up to” percentage is determined if it isn’t based on employee contributions. By tenure?
The only real question here is what does “up to” 15% mean?
The bottom line is they contribute to your 401k. You should also be contributing. You will need to do some research on what funds are available, and choose the ones in accordance with your risk profile.
I’m at a company that currently does this. The “up to ___” for us is a combination of company performance and personal performance. The biggest pro is that they’ve contributed more money than the basic 2-6% match I’ve gotten at past firms. The biggest con is that we don’t know what we’re getting until year end comp discussions where they outline our personal profit share amount. Second biggest con is that it’s fully discretionary, in a really bad market I could see them pulling profit sharing, but that hasn’t happened in my 2 years here. Usually 401k matches are given regardless of company performance.
It’s pretty normal. My company does a typical match every paycheck, and once a year in January they make a flat 5% salary contribution.
The main reason they do it is to make sure they pass the anti-discrimination testing regarding how much High vs Low earners put into the plan.