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Are you maximizing your Employer Sponsored Plan?



Next time you check your employer sponsored 401k or 403b balances make sure you consider the following: 1) Are you maximizing your company match contributions?-Some employers will deposit money equal to the amount that you deposit from your paycheck. Employers consider this ‘match’ to be part of your total compensation package. Maximizing your contributions means contributing at least enough to receive the full amount of company match. If possible, then this would be a way to receive the full benefit. 2) How much you set aside from your paycheck as a contribution? -The amount of money put towards your employer sponsored plan is usually set as a percentage. Ideally you would maximize the company match as stated above, but beyond that should you allocate more? Most planners will tell you that investing anywhere between 7-15% of your compensation towards your retirement goals is a best practice; however, it is possible to overfund your retirement account or to miss out on important employee benefits.

a. It may be advantageous to increase your overall contribution during bear markets to take advantage of lower prices. This can be an easy way to dollar cost average into the available investments.

b. You may be able to reduce your contribution amounts to help fund other goals such as to pay your child’s education, to create a roth ira, to develop your safety fund, add to a non-retirement account, or to set up an HSA.

c. Remember to consider all of the forms your company contributes such as matching, profit sharing or other equity awards and don’t worry too much about hitting the magic number of 7-15%. This decision will be based on your financial situation and goals. 3) How should your contributions be invested? -Your contributions and the employer's contributions should be set to purchase investments. Plans will offer a default(s), but it is important that you to look into your available investments and be careful when making your selections. Examples include: a. Lifecycle Mutual Fund(s)- A fund of other funds designed to be more aggressive the further away the date of the fund. For example, the 2060 fund will be more aggressive than a 2025 fund. These funds can be great for a beginner investor, but do carry some extra costs from the expense ratios of the underlying investments. These kind of fees may not be easily identified so you will need to you look at the details of the holdings reports for the fund. b. Actively Managed Mutual Funds- These funds can be available as an equity (stock) fund, a bond fund, an asset allocation fund with both equities and bonds, or can get get as specific as a High Income (junk) bond fund, Large Cap Equity, or a Consumer Discretionary sector fund. c. Company Stock Fund(s) - This can be a great way to purchase your company’s stock. These usually come in the form of a unit which is composed of shares of the stock and cash. A valuable characteristic with this type of investment is ‘Net Unrealized Appreciation’ opportunities which permit eligible participants to defer ordinary income tax on a capital gain at the time of distribution in retirement, but be careful to diversify your investments. It is easy to invest a lot in your company’s stock when you are a loyal employee who believes in the business. There is more involved with 'NUA' that is not part of this blog.


d. There could be others investments available including others specific to your company’s plan such as a pooled investment vehicle. Be sure to review your plan document(s) for more information related to your available investment options.


Working with an hourly financial planning company can help you determine a savings rate and which investments are best for you and your family.


4) How many times a year are you able to rebalance or reallocate the investments held in the account? - Rebalancing is important to help mitigate the risks of the market. Plan rules indicate how many times a year you can exchange mutual funds or investments in the account. 5) What is your company’s vesting schedule? - A Vesting schedule is used to determine when you own your employer’s additions to your account. ERISA guidelines permit plans to setup ‘Cliff’ or ‘Graduated’ vesting schedules. This means that all or a portion of your company match could be returned to the company (forfeited) when you leave for a different job or change careers unless you are fully vested.


a. ‘Cliff’ schedules apply a set number of years of service to become 100% vested. For example, after three years.


b. A ‘Graduated’ schedule sets a gradual, for lack of a better word, percentage for vesting. This percentage will increase with your years of employment until you become fully vested. For example, a seven year schedule may vest 20% of the contributions (including any profit sharing) after your third year and become fully vested after seven years of employment.





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