Saturday, February 08, 2014
Employers new practice of paying 401(k) matches once a year undercuts the discipline of employee savings
Some employers have been undermining associates retirement savings by paying 401(k) matches only at the end of the fiscal year, denying employees the effect of compounding or dollar cost averaging during the year, and causing employees who leave any time during the year to forfeit the entire match.
A similar thing can happen with severance pay: if an employee is laid off before making the date of another full year, some weeks of severance can be lost. This did happen to me in 2001.
The latest furor came about when AOL made this change, along with a remark that two employees whose young kids had big illnesses hit the bottom line, when there are also controversies over CEO pay. The link is (website url) here.
This behavior by employers undercuts advice that people should save regularly their entire working lives.