Even though job-hopping is becoming more prevalent, employees need to beware of what too-frequent job changes could do to their retirement.
According to a report from the BBC, the length of time a worker spends at a job before leaving in search of greener pastures can weigh on his resume.
But so too can it weigh on retirement accounts, particularly for younger workers, as companies tighten requirements on 401(k) participation and eligibility.
According to the Bureau of Labor Statistics, the median amount of time Americans spend at one job is 4.2 years as of January 2016; that’s down from 4.6 years in January of 2014.
Not only that, but the average worker will change jobs 7.4 times over the course of a career.
In the U.S., the average tenure of workers aged 55–64 was 10.1 years, more than three times the 2.8 years of workers aged 25–34.
And that means it’s likely a lot of workers are leaving money on the table at previous employers—either through departing the job at the wrong time of year and thus missing out on employer contributions to the plan that might not be made till the end of the year, or not staying long enough to fully vest in a plan and thus be able to take those employer contributions with them.
Employers changing contribution times
Bloomberg reported in 2014 that employers were beginning to tighten the screws on 401(k) plans by reducing the size and limits of the employer contribution, changing when that contribution was made and lengthening vesting schedules.
Moving from a multiple-times-a-year contribution to a single contribution made at the end of the year not only cuts the amount that goes into an employee’s retirement plan, but also increases the likelihood that said employee will lose out on those matching funds if he or she leaves for another job before the contribution is made.
Then there’s the little matter of the company reaping the benefits of the departing employee’s forfeiture of the matching contribution.
While such a move can save companies plenty, it can cost their workers and endanger their retirements.
The Bloomberg report cited figures from the Employee Benefit Research Institute that calculated the difference between a 6-percent employer match and a 3 percent employer match over the length of an employee’s career.
The 6 percent match until age 65 (something else a job-hopping employee is not likely to get) would amount to $812,636, while a 3-percent match over the same period would only yield $624,062.
Generous plans often have a catch
Incidentally, in 2015 Bloomberg looked at the 401(k) plan then-mogul Donald Trump provided to his employees; while on the face of it it was generous, with a 4.5 percent match for an employee contribution of 6 percent, Bloomberg said, “But there’s a catch. You can’t even join the plan until you spend a year as a Trump employee. Call it an apprenticeship.”
In addition, a Trump employee would have to stay for six years to be fully vested in the plan (“That vesting schedule is the slowest allowed under U.S. law”) and would have to stay till the end of the year to get the employer match for that year. Leave in October? Fuggeddaboudit.
There was one more catch to the Trump plan. “[I]f you worked for Trump from March 1, 2009 through June 30, 2012, you were out of luck entirely,” the report said. “Trump, who claimed an $8.7 billion net worth last month [that would have been June of 2015], suspended all employer contributions to 401(k)s for more than three years.”
Then there are the people who leave jobs never having taken advantage of whatever plans were offered, meaning that during that period of working they likely saved nothing at all for retirement.
Even if they’re only there for a few months and thus don’t qualify via length of service to join the plan—or if they won’t be long enough to vest and gain the employer contribution when they leave, they should be taking the opportunity to save for retirement—even if it’s via a traditional Roth or IRA.
If they end up staying longer than expected, they might qualify after all, not just for the plan itself but also for employer matches—which, one must admit, is free money.
But even if they don’t, they’ll have their own savings to take with them. And at a time when preparing for retirement, whatever a worker’s age, is becoming ever more challenging, no one should ever leave even a dollar on the table.
Some people cash out their plans when they leave a job, which likely means they’ll have none of that money left by the time they’re ready to retire. But there are tools available to help them roll over those accounts instead, so that the money can continue to grow.
Retirement plan Lost-and-Found
And then there are the people who leave jobs and plans alike behind, losing track of any accounts, however large or small. In 2013, that amounted to 15 million orphaned accounts totaling more than $1 trillion.
Workers who have done this do have some resources available to help them locate those accounts, such as the team of Alliance Benefit Group of Illinois and Retirement Clearinghouse, LLC, which deliver managed portability solutions for participants in the plans it services.
ABGI is making Retirement Clearinghouse’s managed portability services available at no cost to participants, and when a participant elects to take advantage of those managed portability solutions to do so, Retirement Clearinghouse will provide assistance with locating, transporting, and consolidating retirement savings accounts.
In addition, last year Senator Elizabeth Warren, D-Massachusetts, proposed a sort of national “retirement savings lost and found.”
In a bill introduced with Montana Republican Senator Steve Daines, Warren introduced a bill that would create a database of old retirement accounts.
In addition, the bill would allow abandoned retirement accounts to be invested in target-date mutual funds, rather than the cash that many stranded 401(k) accounts end up in—thus avoiding their value being eroded by inflation.