Are You Underpaid? Is It Your Fault?

November 21, 2014 12:00 am
Derek

Derek M. Amey

Managing Director & Portfolio Manager

What would you say if I told you that many Americans are under paid?
You’d probably shake your head yes, and then daydream about how you can get your boss to give you a raise.

Now what would you say if I told you that many Americans are not receiving the full share of their salary, and it’s THEIR OWN FAULT?
You’re probably confused, wondering if you are one of these people, and what the heck I’m talking about.

There was a headline that made the rounds the other day about Boeing employees who collectively left $98 Million dollars on the table during calendar year of 2013. The culprit? The failure of tens of thousands of Boeing employees to contribute enough to get the full match in the Boeing 401(k) plan. According to the article, over 8,400 employees didn’t contribute a dollar to the plan, and another 48,000 didn’t save enough to get the full match. The failure of all these Boeing employees to contribute enough to get the full match that they are due as employees brought the total loss of salary to $98,000,000. Keep in mind, that was just for one year, 2013.

Let me be perfectly blunt, the match to your 401k is part of your total compensation package from your employer! Failing to contribute enough to your retirement plan is the equivalent of taking a pay cut. There’s no one to blame but the employee if they fail to get the full match. Yes, I’m fully aware that many folks struggle to make ends meet, living from paycheck to paycheck. But I implore you to do a monthly balance sheet, and see if there isn’t a way to save enough to get the full match. For some of you, the match you are not receiving is real money! Let’s take a look to see what I mean.

Boeing employees, according to an online handbook, are offered a 100% match on the first 4% the employee defers, and then 50% for the next 4%. This brings the effective match to 6%. This is a fairly robust match, although I know of a few local companies that go as high as 10%.

Let’s assume for a moment that’s a typical match for a working couple. Let’s further assume that a husband and wife are making $100,000 combined. If this couple chooses not to save one single dollar, their missing out on $6,000 a year in savings via their match. That’s $500 a month! Multiply that by 4 years, and you have $24,000, that you aren’t earning.

Be aware that if you are one of these people who are coming up short, more and more companies are starting to be more proactive and address your lack of contributions. I know of one fairly large local company that recently announced that effective immediately, every employee will default to a 7% contribution to their 401(k). This was not by accident, as the 7% is the required amount to get the full match. To opt out of this default, employees must call and talk with a representative who will be armed with information and education to try and convince their employee to stick with the default.

This move is a progressive way of trying to address the overall issue: far too many Americans are not saving enough for retirement. So far it’s one of the most aggressive moves I’ve ever seen, and it will be interesting to see other companies follow suit. Regardless of if they do or not, I can’t encourage folks enough: don’t be like those Boeing employees. The total compensation for the job that you do includes your 401(k)  match. Failure to save enough to get the full match is equivalent to taking a pay cut!

Derek Amey serves as Managing Director and Portfolio Manager at StrategicPoint Investment Advisors in Providence and East Greenwich. You can e-mail him at damey@strategicpoint.com.

The information contained in this post is not intended as investment, tax or legal advice. StrategicPoint Investment Advisors assumes no responsibility for any action or inaction resulting from the contents herein. Derek’s opinions and comments expressed on this site are his own and may not accurately reflect those of the firm. Third party content does not reflect the view of the firm and is not reviewed for completeness or accuracy. It is provided for ease of reference.