How uncommon is a 10-percent 401(okay) contribution – with no required worker contribution?

A reporter requested not too long ago what I considered the brand new 401(okay) contribution price within the United Auto Employees (UAW) settlement with Ford, Basic Motors, and Stellantis.  The businesses have agreed to extend their 401(okay) contributions from 6.4 p.c 10 p.c of pay – with no required worker contribution.  Is that beneficiant?

First, my framework for judging any employee/administration deal is the sample of wage development since 1979.  Median earnings for full-time year-round male staff in 2022 had been $62,350 in comparison with $60,360 in 1979 (each figures in 2022$).  That’s, when it comes to actual shopping for energy, the earnings of males in the midst of the pack working full time have remained nearly unchanged for greater than 50 years (see Determine 1).

So, I rejoice at any growth that raises the compensation of those staff – particularly in gentle of the big concessions that the UAW made in 2007 when the businesses had been teetering, and the report earnings of the automakers lately.  Anybody employed after the 2007 contract turned a “second-tier” worker with decrease wages and advantages – importantly, their retirement protection shifted from the outlined profit plan to a 401(okay).  Certainly, restoring the outlined profit plan was on the UAW’s record of calls for.

Whereas the automakers didn’t comply with restoring the outlined profit plan, they did concede to a 25-percent enhance in wages, the reinstatement of cost-of-living changes, a extra speedy path to high wages, and considerably enhanced retirement advantages.  For these within the outlined profit plan, the automakers agreed to a $5 credit score every month for every year of service – that’s, a employee with 25 years of service would obtain $125 extra per thirty days.  For these employed after the 2007 contract, they agreed to extend the contribution to the 401(okay) plan.

By way of the precise query in regards to the 10-percent contribution to the 401(okay), knowledge from Vanguard recommend that the contribution is increased than that supplied by most different employers.  First, it’s uncommon for a corporation to offer solely a nonmatching contribution – simply two p.c of plan individuals obtained one in 2022 (see Desk 1).

Table showing the types of employer contributions, 2022

Second, for these employers providing solely a nonmatching contribution, solely 5 p.c of individuals had been in plans that supplied a contribution of 9 p.c or extra (see Determine 2).

Bar graph showing the plans offering only a nonmatching 401(k) contribution, value of contributions by percentage of participants

The ultimate query is how the worth of the employer contribution varies throughout sort of contribution.  Within the case of nonmatching, the worth is just the share contributed.  Within the case of matching contributions, the worth is calculated as the utmost quantity promised by the employer.  For instance, a match of $0.50 per greenback on the primary 6 p.c of pay guarantees a 3-percent contribution from the employer.  This calculation considerably overstates the worth of the matching contribution, since solely two-thirds obtained the complete employer matching contribution.  Nonetheless, the sample means that some individuals in plans the place the employer supplies each an identical and nonmatching contribution might get pleasure from mixed employer contributions akin to these supplied by the auto corporations.  However total, the 10-perent non-matching contribution is certainly on the excessive finish of plan suppliers.

Table showing the median value of promised employer contributions by type of employer match, 2022

For my part, that is excellent news. 

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