Weighing job offers? Compare their retirement plans, too

Your Money


Like couples who are loath to discuss estate planning before the wedding, workers often fail to study retirement plans as they consider a new job.

Focusing on salary alone, however, could leave a hole in the nest egg at retirement.

Say you have two job offers, one paying $50,000 and the other $47,000. The higher salary comes with no matching funds in the retirement plan, while the lower one has a 3 percent match if you contribute 6 percent.

Assuming you contribute 6 percent of your salary for 30 years, not including pay raises, you'd have $372,584 in your retirement plan at the higher-paying job, according to a calculator at Bankrate.com, which factored in 8 percent annual returns. But you'd have $525,343 with the match.

"Almost the last thing employees are looking at is the retirement plan," said Paul Dorf, managing director at Compensation Resources Inc., an Upper Saddle River, N.J., consulting firm. "For anybody under 40, there is a very strong likelihood that if they hear there is a 401(k), they will accept it without asking any questions ... ."

Still, Dorf said, the retirement plan tail shouldn't wag the salary dog. Although pay almost certainly will rise over a career, retirement benefits can be whisked away in tough times.

Even career advancement can take precedence. Eric Douglas, 57, a computer systems consultant in Golden, Colo., took a salaried position after having his own business for several years. Even with a retirement plan that kicks in 6 percent of his new salary, he was able to sock away far more as a self-employed worker.

"I was making a lot more on my own, too, but eventually I needed to update my skills, so this made sense," he said.

So how do you evaluate a potential employer's retirement plan?

Start by asking for a summary plan description, said Jerrold Levy, a partner in Chicago with Mercer Human Resource Consulting. This will give you the details on when you can join the plan and what the company will match on your savings.

Don't forget to ask about other opportunities for savings, such as profit-sharing plans.

"If there's a profit-sharing plan, ask if there is a minimum contribution amount that the employer will make on an annual basis," Levy said. "If there is not, get a five-year history" showing what the firm paid.

Next, ask for detailed descriptions of the mutual fund choices in the plan, said Lori Lucas of Hewitt Associates in Lincolnshire, Ill. Typically, employers offer single-page Morningstar Inc. sheets on each fund, which contain expense ratios and investment styles, she said.

This will help you decide if the investment choices are strong enough to roll over your old 401(k), or if you'd be better off in a self-directed individual retirement account.

If the plan offers proprietary funds, ask for a comparable public fund that will give you an idea of asset allocation, and ask for historical returns.

Once you have an offer in hand, if the new retirement plan doesn't measure up to your current or another prospective employer's plan, that is the time to negotiate, Dorf said.

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