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THERE’S BEEN MUCH talk in 2021 about the future of work, with a big focus on remote and hybrid office arrangements. But I’m more intrigued by another major trend: job hopping. Each month, labor economists get a fresh read on the pace of hirings, firings and quits. In fact, the “quit rate” has become a household term in 2021, as workers change jobs to snag higher pay.
That got me thinking about conventional personal finance wisdom, which says that employees should contribute as much as possible to their 401(k) plan. Capturing the employer’s matching contribution is a must, or so say nearly all personal finance gurus.
That’s still good advice today—but maybe not tomorrow. I believe companies will put in place crafty incentives and clauses to retain employees. Perhaps stretched-out schedules for vesting on 401(k) matching contributions and stock options, as well as for receiving student loan payback benefits, will become more common in the coming years.
For those fresh out of college, it might not be wise to contribute to a 401(k) if they must stay with an employer for many years to get the match. Sure, they’ll still get the initial tax deduction for their contributions, but they’ll also end up with limited—and potentially high-priced—investment options. The median tenure for workers ages 25 to 34 is less than three years, according to the Bureau of Labor Statistics. That survey was conducted before the pandemic began. Younger workers are likely job hopping even faster today.
I’ve been interviewing for finance jobs recently. Two major firms I spoke to didn’t even offer a matching retirement plan contribution, but they did offer other financial incentives that came with lengthy vesting periods. Is that going to be the new normal? With employee turnover hitting a record high, companies must not only work hard to hire quality workers, but also they’ll need to get creative if they want to retain them.
Companies have contributed to this problem by layoffs, outsourcing, mergers and other tactics. Their loyalty to employees in large measure no longer exists. These lengthy vesting strategies might work for some but for others they may not as companies decide to cut staff whenever it is to their financial advantage.
This sounds like the olden days which caused the ERISA law to come into effect. Companies would keep you until you were almost eligible for a pension and then fire you. Not vested; no pension. Great cost savings. Maybe this will be the same result.
ERISA became a law as a result of the Studebaker bankruptcy and the discover of no secure funding of promised pensions.
It is very important that we have ERISA. However, employers can still structure their retirement benefits to save costs and promote longevity. My last employer doubled its employer match after 10 years.
Its very different from the work world I experienced. I worked for exactly one company for 38 years. Still live in the only house we’ve ever owned. I think that was rare in my day but it is probably impossible now. It would make sense for companies to add more golden handcuff benefits to try to reduce turnover of their key employees. I worked at least one year longer than I might have to be able to sell some stock appreciation rights worth six figures. If the value of the deferred benefits is high enough it becomes very hard to leave that money on the table. Very intriguing post!
Thank you!
Mike, perhaps the last two years have changed the outlook of some workers too – job hopping may not be the best overall strategy.
As a dinosaur who worked for the same company for nearly fifty years, I can’t relate to “less than three years” strategy.
401k plans came about in part because of shrinking job tenures which made traditional pensions nearly worthless. On the other hand imagine the value of a pension based on 50 years of salary and bonuses. Of course those days are gone even at my former employer.
I think the idea that employers want to retain workers over long periods is short lived.
Take a step back and look at what you and I both said. I think we are inadvertently making the case for a single, mobile retirement plan where how and where one is employed is not a factor, but still captures employer contributions and allows investment choice.
I think the dimensions of space, time, and geography are greatly reduced. If not gone. Workers should always keep an eye out for better opportunities. It’s a balancing act, I concede, since a worker doesn’t want to turn off employers by leaving a job every year, but there’s little point in just staying put at a job that isn’t satisfying or competitive. Just look at the wage increases for job switchers.
That’s a good point. I recall how long time workers would be upset when a new hire came to the same job earning the same or more. They forgot experience came with the new worker. On the other hand, it always bothered me that the people who came and went were never responsible for their actions or initiative during their stay.