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How About a ‘Super 401(k)’?
By JLP | December 10, 2007
I read an interesting Business Week article titled Redrawing the Route to Retirement, which is about Devon Energy’s ‘Super 401(k).’ The ‘Super 401(k)’ was set up to take the place of their traditional 401(k) and pension plan. Employees who sign up for the new plan and contribute 6% of their salary to the plan, can expect a company match of 22%! Yes, that’s right… TWENTY-TWO PERCENT (unless the article is wrong)!
The new plan does come with a hitch: employees must give up most of the control over their plan:
…these new 401(k)s are starting to look more like a traditional pension plan, in which the company makes decisions about funding and investments. The big difference, of course, is that if the investments don’t work out, it’s the employee’s problem, not the company’s.
Sounds scary but it’s important to note that the vehicle of choice for this particular plan is target-date funds managed by Fidelity, which become more conservative as investors near retirement.
Personally, I would have a hard time giving up control of my investments. I would have to do some serious number-crunching to see which route I would take. Still, a 22% match is pretty incredible to think about.
Topics: 401(k), Business News, Investing, Retirement Planning | 6 Comments »
December 10th, 2007 at 1:58 pm
I’d do it. id put in 6, take the 22 match, even if they dont get any significant earnings, that still a nice addition, then take another 9 percent and invest as I please in an IRA or something similar.
December 10th, 2007 at 2:28 pm
Unfortunately, I see no reason why they can’t do both — offer the 22% (16% “flat”, though that’s only for the most senior employees, plus
December 10th, 2007 at 2:41 pm
a match of up to 6%) and allow people to choose their own investments. They’re essentially trying to act as the benevolent dictator of 401ks. Whether or not this is a good idea for the population at large is debatable; it would prevent another Enron (though that’s already been prevented) or anything like it.
You should also note that they’re not really making the decisions for you. Reading the first few paragraphs, I got the image of some know-it-all in accounting making all the investment choices. In fact, they’re simply only giving you target retirement funds to choose from. I see this as being only a bit more limited than some other plans (a few bond funds, an international, and a few US stock funds). Luckily, you can choose which one. For me (26 years old), this is still too conservative, but in 10 – 15 years the fund for the youngest cohorts will be “ok” for me.
December 10th, 2007 at 3:49 pm
I think this is a good idea for those people who refuse to take care of their own retirement planning; unfortunately a fairly large segment of the working population. Better to have their retirement savings in a lifestyle fund than in some ultra conservative savings investment paying 4 or 5 percent.
I also recall from the article (I read it last week) that the 22% has to do with people switching from Devon’s defined benefit pension system.
December 10th, 2007 at 5:21 pm
I read the same article. I would do it in a heartbeat. With a 22% match, you would be hard pressed to come out behind no matter how your investment choices perform.
Besides, I think the article really exaggerated the lack of control employees have. They have a choice of a range of Fidelity funds! Those are better options than can be found in most 401k plans that I know of.
December 11th, 2007 at 10:56 am
I would also trust the company if I received a 22% match. I have to admit that I would check up on it frequently…and if I wasn’t happy, I would certainly let someone know!