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| Employer Contributions: Hey Buddy, Got a Match? |
| Companies can give their employees all sorts of things to keep them happy (and to convince them not to leave): health benefits, gym memberships, free parking, free day care, and yes, even free money. |
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| That last one might sound too good to be true, but free money is exactly what you get when your employer offers to match your DC plan contributions. Matching is common in 401(k)s and 403(b)s, and it works like this: Your employer agrees to contribute a fixed amount, say 50 cents, for every dollar you invest in your retirement account.
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| Many employers tie those matches to a vesting schedule. That means you're only entitled to the money your company has contributed if you stick around for a specified number of years. For example, if you leave the company after two years, you may only get 40% of the company's match. Your own contributions, however, are always 100% yours from the start.
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| Companies also may place limits on
how much of your contribution they'll match. For
instance, your company might cap the amount they give you
to no more than $2,000 a year no matter how much you contribute
to your DC plan on your own.
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| Like most of the other benefits your company offers, though, a company match is discretionary and can be rescinded at any time. This happened a lot during the 2008 recession. In order to reduce costs, many companies temporarily suspended matching contributions. As the economy began to recover, many of those companies reinstated their matches. |
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| If your company does offer a match, you should try to invest at least as much in your DC plan as your employer matches. It's the smart thing to do. Otherwise, you're passing up free money. |
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