Retirement Plan Questions

[hermione]

Below is the retirement plan offered to me. I know it's not a good plan but I am hoping some of you can answer some questions I have. Since there is no match, why would I choose this over a Roth? If I left before I was vested in 3 years, do I just lose the 10% of my salary that was contributed? Is there anything (else) that strikes you as notable about this plan?

For full time employees hired after May 31, 2011, the library’s retirement plan is a defined contribution 401A plan. Employees do not receive retirement income from the library; after three full years of employment they can receive the total contributions to the 401A plan upon retirement, termination, resignation or death.

• The library contributes 10% of the employee’s base wages each year into a portable 401A plan,
• This contribution is vested at the end of three years of employment,
• Employees do not have the option to contribute to the plan,
• Withdrawals prior to age 52 due to retirement, termination, resignation or death will incur an IRS penalty unless the plan is rolled over into another qualifying instrument or left until age 52 is reached,
• The employee can draw from the plan when they retire at, or after, age 52 without an IRS penalty.
• Employee participation is optional.

[mich1]

It sounds like you are getting 10% and you do not have to contribute, not that they are taking 10% of your income (that's why it's vested). At the end of 3 years, that money is your's so that if you leave the library after 3 years, you can roll it over into an IRA.

Free money is still free money, and you can contribute to other retirement vehicles (like an IRA).

[hermione]

I guess I didn't read it that way. I read it as the 10% coming out of my salary pre-tax.

[spunkarella]

I also read it as the library contributing without anything coming out of your paycheck. I would imagine your salary could be a bit lower than it otherwise might be, and you may not have a lot of say in how it is invested.

Generally with vesting plans, you get all of your own contributions back if you leave at any time. Only the employer portion of the contributions go away if you leave before vesting. Except it looks like with this plan, you don't have the option to make your own contributions.

I would look at this free money as a bonus, not count on it at all until after 3 years are up, and contribute to a Roth on my own.

[cjeanette]

Mar 28, 2015 14:13:16 GMT -5 hermione said:

I guess I didn't read it that way. I read it as the 10% coming out of my salary pre-tax.

No. They contribute 10% of your salary. They don't deduct it. That would be an employee contribution.

[delawarejen]

It's a defined contribution plan. According to what you posted, they'll put the money in, it's not coming from your paycheck. I would do this in addition to a Roth IRA. It doesn't say if you will be picking the investments from a list, or if they will make the investment decisions for you.

(These types of plans come in various types and vary from company to company as to who can contribute, the percentage, the vesting schedule, the full retirement date, etc. By the way, there's a decent chance your coworkers who were hired before the 5/31/11 date in your post are in a different plan or a different type of plan altogether - like the old defined benefit pensions - so asking them questions may not give you the right advice.)