Evaluating and Negotiating Job Offers
Part 4 – 401K
(This is part 4 of the series on Evaluating and Negotiating Job Offers. You may also find these other parts of interest: Part1: Base Salary, Part2: Signing Bonus & Relocation Benefits, Part3: Stock Options, Part5: ESPP, Part6: Other Perks).
The next aspect we look at the 401K
What is a 401K?
A 401K is an employer sponsored retirement plan. Instead, of offering pension plans, most companies these days offer 401K retirement plans. The way this works is, you set aside a certain portion of the pay check, before taxes to pay for your own retirement. In order to encourage employees to set aside this money, employers offer a “match”. For example, if your company offers you a 3% match, then it means that if you set aside 3% of your pay for your retirement, the employer will put an additional amount equal to 3% of your pay into your retirement account. Suppose, your salary is $50K. Then, this means, if you contribute $1500 towards your 401K, then the employer will add $1500 to your 401K account. That is free money in addition to your salary! That’s why it’s important to pay attention to the company match towards your 401K while evaluating an offer.
Some additional information about 401K:
More detailed information about 401k can be found on this Wikipedia Page.
Setting your expectations:
The percentage of matching by the employer varies from company to company. According to this website,
Seventy-five point five percent (75.5%) of companies match employee contributions. The average company contribution was 4.1% of payroll.
Also, remember that in some companies the matching contributions may not start immediately after you join. Company policies may require you to be an employee for 3 months, 6months or even a year or more before you qualify for company match.
Negotiation:
The 401K is decided based on company policy and you will not be able to negotiate a different matching percentage. However, it can (and must) be used while comparing two offers, to determine the value of the whole package.
Please stay tuned for more discussion on other aspects of the compensation package namely ESPP, annual bonus, insurance benefits, paid vacation and other perks.
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