401k question Forum

[Anonymous User]

My firm's 401k ranks highly (according to this: http://abovethelaw.com/2013/02/biglaw-p ... -rankings/), but the firm doesn't even match contributions. What am I missing? It seems like matching should be a precondition to a good 401k, right?

Also, is it unusual that my firm doesn't match contributions?

[hephaestus]

It's not unusual for firms not to match. I only know of two NLJ250 firms that do (though I by no means know everything). I know many more that do not.

[thesealocust]

I think Wachtell is the only firm I've heard even rumored to match 401(k) contributions. Rankings have to do with available investments (cost, variety, etc.) within that plan.

For every tear you shed over lack of a 401(k) match, just realize it's not free money from the firm's point of view. The firm knows exactly how much compensation they provide each employee as a combination of salary, bonus and benefits. A contribution match is not free, and it's reasonable to assume the large associate salaries at big firms are as large as they are partially because some amount of compensation is coming in the form of salary rather than retirement benefits. No free lunch, yada yada.

Put another way: you might wish your firm provided a 401(k) match. How much salary would you be willing to give up for it? If the answer is zero, why do you assume the overall compensation package is too low, and why would you want it increased in the form of a match rather than more salary?

[Anonymous User]

I'm at a firm on that list too, and I'm 90% sure the 401(k) rankings are how good they are for partners, not associates. Short explanation (you can do research online if you want the more detailed one) but all individuals can contribute $17,500 to a 401(k) plan for 2013. However, if a firm has a particular type of plan that they require all employees to be a part of, partners can greatly increase how much they can put in a 401(k) above the $17,500 by requiring that all employees contribute x% of their compensation to the plan. At my firm, all employees automatically have 5% of their salary go to the 401(k), and then we can add more up to $17,500. For most associates, we contribute the mandatory 5% and maybe a little more, if at all, but for partners that can afford to save much more, they can save a lot tax-free.

For example, a partner making $1M/year with a 5% mandatory 401(k) plan can put $67,500 away each year tax-free ($50,000 + $17,500). For a second year associate, $8,500 automatically gets put away, with the option to contribute up to $17,500 more.

TL;DR - That list ranks the plans based on how much they help the partners, not the associates.

[lukertin]

Rankings are done solely based on the choice of funds available and their cost.

[FamilyLawEsq]

From my experience most firms with a 401 k match between 4-10% of your contribution. I match 5% of my employees' contributions.

[lukertin]

I'm at a firm on that list too, and I'm 90% sure the 401(k) rankings are how good they are for partners, not associates. Short explanation (you can do research online if you want the more detailed one) but all individuals can contribute $17,500 to a 401(k) plan for 2013. However, if a firm has a particular type of plan that they require all employees to be a part of, partners can greatly increase how much they can put in a 401(k) above the $17,500 by requiring that all employees contribute x% of their compensation to the plan. At my firm, all employees automatically have 5% of their salary go to the 401(k), and then we can add more up to $17,500. For most associates, we contribute the mandatory 5% and maybe a little more, if at all, but for partners that can afford to save much more, they can save a lot tax-free.

For example, a partner making $1M/year with a 5% mandatory 401(k) plan can put $67,500 away each year tax-free ($50,000 + $17,500). For a second year associate, $8,500 automatically gets put away, with the option to contribute up to $17,500 more.

TL;DR - That list ranks the plans based on how much they help the partners, not the associates.

I don't think you understand how 401ks work.

[Tiago Splitter]

I'm at a firm on that list too, and I'm 90% sure the 401(k) rankings are how good they are for partners, not associates. Short explanation (you can do research online if you want the more detailed one) but all individuals can contribute $17,500 to a 401(k) plan for 2013. However, if a firm has a particular type of plan that they require all employees to be a part of, partners can greatly increase how much they can put in a 401(k) above the $17,500 by requiring that all employees contribute x% of their compensation to the plan. At my firm, all employees automatically have 5% of their salary go to the 401(k), and then we can add more up to $17,500. For most associates, we contribute the mandatory 5% and maybe a little more, if at all, but for partners that can afford to save much more, they can save a lot tax-free.

For example, a partner making $1M/year with a 5% mandatory 401(k) plan can put $67,500 away each year tax-free ($50,000 + $17,500). For a second year associate, $8,500 automatically gets put away, with the option to contribute up to $17,500 more.

TL;DR - That list ranks the plans based on how much they help the partners, not the associates.

This is very wrong.

1) No business can require that employees defer salary. There might be automatic enrollment, but you can always opt out.

2) While deferral limits for highly compensated employees are impacted by the contributions of non-highly compensated employees, NYC BigLaw associates are themselves highly compensated employees, so their participation doesn't help the partners put away more.

3) Even if every non-HCE put away the max partners can still only defer $17,500 with an extra $5500 if they're age 50 or older.

4) Contributions above the deferral limit are either match or profit sharing. If the firm isn't matching then in order for a partner under 50 to get more than $17,500 into the plan the firm must be making profit sharing contributions, which have to go to everyone (or almost everyone.)

5) The most anyone under 50 can have put away on their behalf is $51,000.

[Anonymous User]

1) No business can require that employees defer salary. There might be automatic enrollment, but you can always opt out.

My firm requires 5% of pre-tax salary go directly into the 401(k) with the only opt-out available for "extreme hardship" determined on a "case-by-case basis". I'd be thrilled if you were correct, but as far as I'm aware I don't know of any law or regulation that says this cannot be done. Please post otherwise if you know better.

[Anonymous User]

For people who have been at the firm for more than a year, Munger contributes 3% of your pay each year (up to $250,000 of eligible pay) to your 401K.

[Tiago Splitter]

1) No business can require that employees defer salary. There might be automatic enrollment, but you can always opt out.

My firm requires 5% of pre-tax salary go directly into the 401(k) with the only opt-out available for "extreme hardship" determined on a "case-by-case basis". I'd be thrilled if you were correct, but as far as I'm aware I don't know of any law or regulation that says this cannot be done. Please post otherwise if you know better.

If you're getting 5% and then can put in another $17,500 in on top of that, the 5% is a profit sharing contribution and not a salary deferral. That's what this sounds like. The Pension Protection Act of 2006 allowed for automatic salary deferral contributions but requires employers to let employees opt out for any reason.

403(b) plans can make salary deferral a condition of employment, and collectively bargained plans can do just about anything. If your situation does not fall under either of these umbrellas then you are not obligated to defer salary.

[electricfeel]

Anyone know of a place where they list what firms match 401(k) contributions?

[thesealocust]

Anyone know of a place where they list what firms match 401(k) contributions?

1. Wachtell
2. I'm not sure if there is a 2? And I'm almost positive there isn't a 3.

[electricfeel]

Anyone know of a place where they list what firms match 401(k) contributions?

1. Wachtell
2. I'm not sure if there is a 2? And I'm almost positive there isn't a 3.

Are you sure it's that limited? I know my firm (V75) has a 401(k) match for staff (I believe its 5%). I'd be really surprised if they only do that for staff and not associates.

[thesealocust]

Prepare to be really surprised? I don't mean to be snarky, 401(k) matches are just basically unheard of for associates at law firms. It may have to do with ERISA regs about participation rates amongst employees at various compensation levels or it may not, I'm not certain.

[bk1]

Anyone know of a place where they list what firms match 401(k) contributions?

1. Wachtell
2. I'm not sure if there is a 2? And I'm almost positive there isn't a 3.

Are you sure it's that limited? I know my firm (V75) has a 401(k) match for staff (I believe its 5%). I'd be really surprised if they only do that for staff and not associates.

It is almost always a staff only perk.

[electricfeel]

Anyone know of a place where they list what firms match 401(k) contributions?

1. Wachtell
2. I'm not sure if there is a 2? And I'm almost positive there isn't a 3.

Are you sure it's that limited? I know my firm (V75) has a 401(k) match for staff (I believe its 5%). I'd be really surprised if they only do that for staff and not associates.

It is almost always a staff only perk.

Thanks. What a bummer.

[Tiago Splitter]

If the people making under 115K don't participate, the people making over 115K can't contribute, so be thankful that they incentivize those folks.

[RELIC]

Thanks. What a bummer.

Yeah because your big law salary isn't enough. Surely the firm should spend more money compensating you rather than the staff who has been there longer and contributes more to the business than you will in your first 2-3 years.

[Anonymous User]

1) No business can require that employees defer salary. There might be automatic enrollment, but you can always opt out.

My firm requires 5% of pre-tax salary go directly into the 401(k) with the only opt-out available for "extreme hardship" determined on a "case-by-case basis". I'd be thrilled if you were correct, but as far as I'm aware I don't know of any law or regulation that says this cannot be done. Please post otherwise if you know better.

If you're getting 5% and then can put in another $17,500 in on top of that, the 5% is a profit sharing contribution and not a salary deferral. That's what this sounds like. The Pension Protection Act of 2006 allowed for automatic salary deferral contributions but requires employers to let employees opt out for any reason.

403(b) plans can make salary deferral a condition of employment, and collectively bargained plans can do just about anything. If your situation does not fall under either of these umbrellas then you are not obligated to defer salary.

Ok, so I'm going to assume the 5% is a profit sharing contribution (since the other things do not apply). From an associate's perspective, the end result is the same -- I'm being required to contribute 5% of my salary to a retirement plan, with no choice in the matter. Is there any benefit from this profit sharing plan that I'm not considering?

[Tiago Splitter]

Ok, so I'm going to assume the 5% is a profit sharing contribution (since the other things do not apply). From an associate's perspective, the end result is the same -- I'm being required to contribute 5% of my salary to a retirement plan, with no choice in the matter. Is there any benefit from this profit sharing plan that I'm not considering?

Profit sharing money is just like a match. It comes from the employer. Now I suppose you could argue that the employer could just give you a 5% bonus rather than putting 5% into your retirement plan, and that's a fair point because the employer gets the same deduction either way. On the other hand, profit sharing money will grow tax-deferred and is not taxed until you take it out, which may not happen for several decades.