Why 401(k)s Matter to Your Job Hunt

A lousy 401(k) plan can leave you with hundreds of thousands less in retirement.

ByABC News
August 18, 2008, 2:35 PM

Aug. 19, 2008 — -- No match, no deal.

If you're out hunting for a job, that's what I would tell prospective employers when it comes to a 401(k) plan.

An employer contribution that matches a portion of what you save in a 401(k) or other workplace retirement savings plan, should be a minimum requirement when you're out looking for work.

The overall quality of a 401(k) plan is a critical factor for workers as the traditional pension plan disappears from the private sector workplace. A lousy retirement savings plan can leave you with hundreds of thousands less in retirement.

So, if you're out looking for a job now, or expect to be looking soon, here's what to look for in an employer contribution to a 401(k), 403(b), SIMPLE IRA or other retirement savings plan.

First, any employer of a decent size should offer a contribution that amounts to at least 3 percent of your salary. This may be a stretch for some small employers or startups, but it should be the starting point for most companies.

There are a variety of ways the 3 percent figure can be calculated. Some employers may offer a dollar-for-dollar match of what you contribute. Others will kick in 3 percent, even if you contribute nothing.

The most common formula is one in which the employer kicks in 50 cents for every dollar you contribute, up to 6 percent of your pay.

Whatever the formula, your bottom line should be that the employer's contribution amounts to at least 3 percent of what you make. Anything less and I'd keep looking.

Come across a job that offers more than 3 percent employer contribution, and I'd give a good, long look at that position. Even if the annual salary is less than a similar job elsewhere, a generous employer match may make up the difference, particularly if it's a job you think you're likely to stick with for many years.

In addition to the size of the employer contribution, a second factor to consider when it comes to evaluating a company 401(k) is the form of contribution: Cash or company stock?