Subscribe
Recently, Mapgirl’s 401(k) balance surpassed the $20,000 balance milestone. That’s not small accomplishment for less than two years on the job. For comparison, I’ve been investing in my 401(k) for more than five years now, and my balance is only approaching $40,000 including company match. I started investing only 4% of my salary and have recently increased to 25%, which I can only do thanks to other income.
It’s interesting to see how companies use future payoffs with the intent of retaining employees. For example, when I became fully vested in my company match, after working at the company for three years, I felt better about the possibility leaving the company. If I had quit at two years and 350 days, I would have missed out on thousands of dollars in company match. It wouldn’t make much sense unless I could negotiate a new job offer for a higher salary to take that into account.
Following this thought process further, if I could negotiate a higher salary or other benefit for that reason, I should be able to do so for any reason, making it again a loss to leave before fully vested.
Within a year after becoming fully vested, the company presented a new carrot for its employees: an associates stock grant. A good amount of stock was given to employees but the shares wouldn’t vest until 2009. At the time, it was pretty far in the future, so it’s a part of compensation that would be easily to forget about while negotiating a salary at a new job.
Are you less likely to look for new work if leaving your current company would mean leaving money on the table?
May 31st, 2007 at 9:22 am
Of course… my wife is a doctor and her 401K doesn’t get vested for another 5 years. After that, she plans on leaving the retailer she works for and opening up her own practice. No way do we leave our 50% match on the first 6%...
May 31st, 2007 at 12:06 pm
I am lucky that my 401k matches vest at the end of each year. But, I still have much reason to stay. My base salary is average for my field. But, my base salary is only 65% of my total compensation. At the end of each year, I get a bonus that is currently 15% of my total compensation. That comes in a single paycheck. So, right off the bat, I would want to wait until I got that if I wanted to leave. The final 20% is the real long term incentive. 1/3 of that is cash that vests over 4 years. 1/3 is restricted stock that vests over 4 years. 1/3 is stock options that vest over 4 years.
If I leave the company, everything that is unvested is lost. Plus, I have to excercise any stock options I have outstanding within 30 days. If I stay with the company, stock options don’t expire for 10 years. If I left the company for another company affter being here 5 more years and weht to another with the exact same compensation, they would have to give me a starting bonus of 1/2 year’s salary to compensate for what I lost.
This also affects my retirement. If I leave the company at any time before age 55, I loose anything that is unvested. If I wait till 55, everything I have will immediately vest (but I only get 1 year to excercise options). That will give me nearly a full year of salary immediately vesting. If I wait till age 60, I can take the full 10 years to excercise options. I also am incented to wait till age 60 to retire for pension and retiree health care benefits.
So, not only do they try to stop me from going to another company, they also want me to retire later.
May 31st, 2007 at 12:16 pm
Hey Flexo, thanks for the shout out. I guess I should explain a little more how that number happened to me.
#1 – When possible, I tried to max out my contributions to 20% of my salary. I have had to cut that back at times. Right now, I’m contributing on 17%.
#2 – Generous company matching. It’s pretty standard, 50% of the first 5% of salary, which is about what I got at my old company.
#3 – Rockin’ the salary negotiations at the outset when I got hired. There’s no way I’d be doing this great without that as the cornerstone.
#4 – Very aggressive investing. It’s all stock funds. There’s another post on the blog about ROI. I think my worst return over last year was still double digits.
#5 – My company lets me contribute part of my annual bonus to the 401k. My old company didn’t do that. It’s money that never hit my bank account and I never saw it. This is definitely going to help me max out to $15.5K (or very close) despite putting only 17% of each paycheck right now.
May 31st, 2007 at 1:24 pm
“Are you less likely to look for new work if leaving your current company would mean leaving money on the table?”
Short answer – absolutely.
Longer answer – anyone who invests in a 401(k) has some inkling about personal finance and funding their retirement. A person like that is, of course, going to weigh all financial aspects of a job move. And losing matching money because you’re not fully vested is definitely a financial aspect.
May 31st, 2007 at 1:37 pm
I have in fact not left a company because within a year was I would receive a large sum of money (approx equivalent to 6 months salary). And I hated the work at the time.
Since then I haven’t left as the work has improved and the people are as great as they always have been. Should it turn sour again I might hesitate to stay though.
May 31st, 2007 at 1:46 pm
May 31st, 2007 at 3:06 pm
May 31st, 2007 at 6:22 pm
It’s hard to leave money that’s there on the table. That goes with 401k and bonuses. Especially bonuses at my company because they’re given out 4 months after the year for which they are for. I also have a portion that takes another year to vest. So every year there’s a good chuck that there that’s hard to leave if I wanted to. Golden Handcuffs as they call it.
May 31st, 2007 at 7:30 pm
My company has a pretty bad 401k match so that wouldn’t keep me from leaving. However, I like what I do and I have a lot of good opportunities. After recently transitioning from the military I feel it is more important for me to chase opportunity for a few years before I start chasing money. The money will come with knowledge and experience.
June 1st, 2007 at 6:19 am
June 1st, 2007 at 8:05 am
June 1st, 2007 at 9:30 am
June 1st, 2007 at 9:59 am
I have left a job that was very good with less than a year left before becoming “fully vested.”
The financial analysis should only be part of the equation. I can think of many reasons to leave cash on the table: you want to move to another city or be closer to family or take a different career path or start you own business or take an offer with better long term growth potential, etc, etc. etc.
It is a personal decision that gets into the core of your values. What is more important? Lay out the pros and cons on paper and decide.
June 1st, 2007 at 11:52 am
June 6th, 2007 at 8:10 pm
My husband is about to give up 1/2 of his company match with only 3 1/2 months to go until full vestment. Why? Because the new job can’t wait 3 1/2 months, and we’re predicting a slowdown in hiring in the Valley pretty soon, especially since a very large employer just laid off a very large number of employees.
He’ll ask for a signing bonus (which he would have gotten anyway) to make up for it, and the new company also has a matching program that vests immediately, so we figure it’s worth it not to take the chance of having to accept a lower salary by beating street during a slow economy.
December 7th, 2007 at 6:20 pm
I’m starting a new job and will be walking away from a cash balance plan and 40% of my 401(k) match with 3.5 months left. It’s very painful but I simply did not want to relocate in order to stay with my company. I’m hoping that by some miracle after perusing the plan docs, I can build some kind of case that will help me, but I’m not holding my breath.
At the end of the day, money should not be our main motivation. I’m 30, so basically, I won’t even see this money for another 25 years or so. I may have to become more investment savy and try to make it up in some way.
Sometimes good decisions have bad consequences. They forget to tell us that