Personal Finance

My employer quietly switched our 401(k) contributions to annual instead of per paycheck — is this normal?

Kristin Hitchcock

Published: December 15, 2024 11:46 am

Imagine that you’ve been contributing to your 401(k) diligently, expecting your promised employer match. Then, without much fanfare, your employer announces a major change: instead of matching contributions each paycheck, they’ll do it annually and only if you’re still with the company at the year’s end.

24/7 Wall St. Key Points

• While it’s disappointing, annual 401(k) matching isn’t necessarily a red flag. Often, it’s used as a cost-cutting tactic. 
• However, this shifts the risk onto employees more. 
• Also: Take this quiz to see if you’re on track to retire ^(Sponsored)

A Reddit user recently raised concerns about this shift, and it’s sparked a broader conversation about employer 401(k) match policies. So, what’s going on, and is this actually common?

Why Employers Make the Switch

There are several reasons why an employer might decide to make this shift:

• Cost Containment: Switching to an annual match can save employers money. If employees leave mid-year, the company doesn’t have to pay the match for those individuals.
• Administrative Simplification: Some employers may make this shift to simplify things on the administrative side. 
• Competitive Alignment: Companies may justify the change by claiming it aligns with “market practices.” While this isn’t universal, some industries do trend toward annual matches. It could also just be a perceived shift, too. 

Why Employees Are Concerned

So, why does it matter if your company is doing a match annually instead of monthly? Well, there are several potential downsides:

• Lost Matching Contributions: If you leave a job before the end of the year, then you won’t receive a match for your 401(k) contributions. Many people invest in a 401(k) just because of the matching contributions. 
• Delayed Benefits: Instead of the money making interest throughout the year, you’re left waiting a whole year to receive it. 
• Trust Issues: Changes made without any sort of communication with the employees can develop into trust issues. 

How Common is an Annual Match?

Annual 401(k) matching isn’t unheard of, but it’s less common than per-paycheck matching. The vast majority of companies match on a per-paycheck basis, which allows employees to benefit more regularly. Annual matches are more typical in industries with high turnover or in companies looking to minimize costs.

What You Can Do

You may not be able to do much directly to change your company’s policy, but there are a few steps you can take to be less affected. 

1. Check Your Plan Document: Review the specifics of your company’s 401(k) plan to understand the new policy fully.
2. Adjust Your Strategy: If you plan to leave your job mid-year, you may want to readjust your exit timing to avoid losing the match.
3. Advocate for Transparency: Share feedback with HR or management about the impact of this change on your financial planning.
4. Stay Informed: Make sure you stay up-to-date on your retirement benefits in the future, too.