NEW YORK—A growing number of companies have changed a policy that has long hurt job hoppers: They are allowing new employees to start contributing to the company retirement plan immediately.
Companies have traditionally made new employees wait up to a year before they could start putting money in a 401(k) plan. The result has been that workers who move around a lot have paid a big penalty when it came to building their nest egg.
Costly delaysDespite some relaxing of the rules, many companies still require a waiting period of as long as a year. Below, some pointers for job hoppers:
- When changing jobs, be sure to ask how long before you can participate in the retirement plan.
- If it's a full year, ask for a retention bonus that kicks in once your 401(k) eligibility does.
- If you can't get in a 401(k) right away, set up an individual retirement account for savings in the meantime.
- Companies and Corporations
See more topics »
Even many companies that still require a waiting period have relaxed their rules. Only 19 percent of companies now have waiting periods of six months or longer.
In January, for example, U.S. Bancorp will start granting 401(k) eligibility to new hires after just 90 days on the job. Before, the company made people wait a year before investing in the plan. The giant public-relations firm Hill & Knowlton, a unit of WPP Group PLC, made a similar change this year when it went from a six-month delay to the beginning of the month following an employee's start date. Walt Disney Co. still has a 12-month wait, but a spokesman said the company is considering shortening it to 90 days.
Companies said they are making the changes to attract better workers.
"Nurses are difficult to find in this environment," said Dennis Wade, group vice president of human resources at HealthSouth Corp., which last year reduced its wait time to 90 days from one year. Wade said the company decided to make the change before the company got into trouble for fraudulent accounting.
Taking away the waiting period comes as American workers are becoming increasingly dependent on their 401(k)s for retirement. There now is $1.95 trillion stored in private plans such as 401(k)s, exceeding the $1.59 trillion in private pension plans. The gap between the two is expected to grow as pension plans slowly disappear or are whittled away by cost-crunching companies.
The delays can costs workers hundreds of thousands of dollars in retirement savings over a 40-year career. Of course, disciplined savers instead could put money in individual retirement accounts during the years they are locked out of their 401(k)s.
But the blunt truth is that many workers won't save anything if they don't have a 401(k). Even worse, 42 percent of employees raid their 401(k)s when they change jobs instead of rolling them over into another retirement plan, a Hewitt study found.
Before Maureen Mikelson took a job with a national restaurant chain in December 2002, she made sure it had a 401(k). But after starting the job, she discovered that it would take almost two years before she could contribute to the plan.
"That was not a happy situation," said Mikelson, who left the job six months later. She says she missed out on at least $2,000 of savings in the six months she was at her old employer.
Now, the 32-year-old Mikelson works in marketing for a training company that let her start saving after a month on the job.
Changes in rules
Why have companies restricted access to their 401(k) plans for so long?
Until a few years ago, many did it to stay within government rules. Congress doesn't want the plans to become a tax haven for wealthy executives, so its laws punished employers if too few low-paid workers participated.
That caused companies to bar new employees, since they're often young, make less money, and would throw a company's internal numbers out of whack if they didn't sign up for the 401(k) right away.
The rules on how first-year hires affect a 401(k) plan's status softened in the late 1990s, which is part of the reason companies are cutting the waiting period.