Forget foosball tables, unlimited vacation and free beer on tap. The best work perk in 2022 might be your 401(k) plan — a classic job benefit that's getting even better than usual for many employees.
The retirement vehicle created in 1978 is getting a lot more attention in 2022 as companies scramble to retain workers amid a persistent labor shortage. Americans have been quitting their jobs at record rates month after month in a trend that's been dubbed the "Great Resignation," and employers are being forced to up the ante in the competition for good workers.
A 401(k) is a tax-advantaged retirement plan sponsored by an employer. In a traditional 401(k), employees contribute pre-tax money from their paychecks that is then invested in a mutual fund or funds. Taxes aren’t due until the money is withdrawn in retirement.
A major draw of these types of plans is the matching contribution benefit many employers offer, usually up to a certain percentage of what an employee earns. Of 1,000 workers surveyed in September by Betterment’s 401(k) Business, 65% said they could be enticed to leave their current job for one that offers a high-quality 401(k) or other retirement plan.
Facebook parent Meta and consulting giant KPMG are among a slew of companies ramping up their 401(k) benefits in an attempt to hire new workers and retain existing ones, according to a new report from the Wall Street Journal. At the beginning of the year, Meta upped its 401(k) match to $1 per every $1 contributed by an employee, up to $10,250 or $13,500 for older employees. Meta previously matched half of employee contributions up to 7% of an employee’s pay, the Journal reported. KPMG began contributing between 6% and 8% of employer pay in January, up from a 25% match of up to 5% of employee base pay.
The changes at big companies like Meta and KPMG are one sign that employers are paying attention to the growing importance of financial wellness benefits for workers.
Some 16% of large and midsize employers plan to raise 401(k) contributions or reinstate a contribution match (many of which were suspended in the early days of the pandemic) this year, according to a survey conducted by Callan LLC cited by the Journal. And more than a third of workers surveyed by Betterment said that their employer began offering new financial wellness benefits — including 401(k) programs and matching programs as well as wellness stipends — over the course of the past year.
How to take advantage of 401(k) benefits
A 401(k) account isn’t the flashiest investment opportunity, but these retirement vehicles can pay off big time in the long run. The number of 401(k) millionaires (meaning those whose accounts were worth $1 million or more) hit an all-time high last year, and the average 401(k) balance at the end of the third quarter last year rose to a record high of $135,700, according to Fidelity Investments.
If your workplace is sweetening its 401(k) offerings, now is a great time to take advantage. As always, make sure you’re contributing at least enough to earn a match if one is offered. If you can afford to put away more, it’s a good idea. Experts generally recommend saving somewhere between 10% and 15% of your income in a 401(k) account.
The Internal Revenue Service increased the 401(k) contribution limit to $20,500 (not including employer match dollars) in 2022, up from $19,500 in 2021. Those aged 50 and older can save an additional $6,500 in catch-up contributions.