gs11rmb
Senior Member
Joined: Dec 21, 2010 12:43:39 GMT -5
Posts: 3,298
|
Post by gs11rmb on Jan 17, 2020 10:44:12 GMT -5
I until I read this thread I had no idea that some companies paid out match as a % of salary. I thought everyone's match was a % of contributions. I definitely learn things on YMAM! Well it's usually both. For example, we match 50% of contributions up to 6% of your salary. Most companies who match (50%, 100%, etc) have a limit, and that limit is the % of your salary. Oh... yeah, that's how my company does it as well.
|
|
Rukh O'Rorke
Junior Associate
Joined: Jul 4, 2016 13:31:15 GMT -5
Posts: 9,985
|
Post by Rukh O'Rorke on Jan 17, 2020 11:50:31 GMT -5
My fix is employer contribution not tied to employee and no delays on vesting. You hire somebody, you start depositing in their 401k with the first paycheck.
|
|
Rukh O'Rorke
Junior Associate
Joined: Jul 4, 2016 13:31:15 GMT -5
Posts: 9,985
|
Post by Rukh O'Rorke on Jan 17, 2020 12:10:35 GMT -5
I found once a person hits Director level the perks start to really climb and VP is insane. I worked somewhere with a Defined Contribution Pension that while for everyone, the pot really got sweet the higher your salary got, and that was on top of the 401k match. Even before these extra perks that only exist for execs, I hate the way the matching is usually defined, based on a percentage of your salary, not your contributions. For example, if a couple both work for the same employer, but one makes $30k and the other makes $300k. If both are over age 50, both can contribute $26k to a 401k. If the match is up to 5% of their salary, the lower earner's match is $1.5k, while the higher earner's match is $15k! They contributed the same, why isn't the match the same? Generally in our progressive financial system, the higher earners pay a higher tax rate, or have benefits phased out at a higher rate than the lower earner, on the basis that the lower earner has less disposable income, and the higher earner has more disposable income. Income tax - rates increase with increasing income. Social security - below first bend point, 90% income replacement; above first bend point, 32% ; above second bend point, 15% (decreasing return from greater total earnings). Financial aid - expected family contribution rates increase like tax rates increase at higher incomes. But for matching retirement funds, lower earners get a fraction of what higher earners do, even if contributing the same total? Why not make matching a percentage of contributions, period? Because it's part of your compensation package? It isn't a "gift" to the employee - It is the same as the pensions they replaced - not the same for everyone, and based on your contribution to the company.
|
|
hoops902
Senior Associate
Joined: Dec 22, 2010 13:21:29 GMT -5
Posts: 11,978
|
Post by hoops902 on Jan 17, 2020 12:16:06 GMT -5
My fix is employer contribution not tied to employee and no delays on vesting. You hire somebody, you start depositing in their 401k with the first paycheck. I think that's a fine fix given that people understand that if they're someone who takes advantage of the max match today, the future contribution is likely to decrease. The "pie" of 401k contributions for an employer isn't likely to change, so if they're giving it out to everyone instead of only to people to contribute themselves, there are more slices but the slices are smaller. I think that's fine, because I think it's more up-front in the benefit anyways.
|
|
Rukh O'Rorke
Junior Associate
Joined: Jul 4, 2016 13:31:15 GMT -5
Posts: 9,985
|
Post by Rukh O'Rorke on Jan 17, 2020 12:16:15 GMT -5
The middle class would HATE this honestly. If people get out of the habit of thinking of perks as "free things" from their employer, and start thinking about how it really is which is part of your compensation...the answer becomes clear (in a few ways, one that benefits the employer and one that benefits the employee). For the employer, it's a simple way to keep the budget in line. If I know I match up to 5% of salaries, I know my obligation at most will be 5% of all salary expenditure. I also know that's a relatively low number, so I can assume a pretty high participation level. If I assume $15k per employee...I have to know a lot of employees can't give up $15k every year (especially when I go into the employee side of it shortly), so I have no earthly idea what my liability to this might be. On the employee side. If you make $30k/year, and have a 5% match up to $1.5k, then your compensation is $31.5k (for salary plus 401k match, let's ignore other benefits which conceivably would stay the same). If you now want a match up to $15k, that means your overall compensation stays the same, which means 31.5k-15k+16K new salary. Do you want to give up an extra $13.5k in salary to get $13.5k in 401k match? Or even give up $10k for 13.5k in 401k match. Most people don't. People in general want their compensation in dollars, not matching dollars. People who make less money can't AFFORD to have their compensation given to them in a way they can't immediately access (in general, YM is an exception where people save tons of their pay). Well, this middle class person hates the fact that someone making 10* what I do gets 10* the match for the same contribution. That's rubbing salt in the wound of the extreme inequality of our base salaries. As for figuring employer obligations, I'd suggest a cap for individual matches. I'd guess that employers don't give everyone $15k matches because that gets expensive, but if only a few employees are even eligible for that level, and most are only eligible for the lower match level, the total is manageable. It SOUNDS fair, to match your contributions up to 5% of your salary. But people don't do the math to see the discrepancy. Say an employer has 100 employees, 10 high paid ($300k) and the remaining 90 low paid ($30k), and they have a 5% match. If everyone at least contributes to the match, that's 10*$15k + 90*$1.5k = $285k max obligation. If they changed it to matching contributions (regardless of salary) to a max of $2.85k each, that's the same max obligation. But everyone gets the same max match. Lower earners would now get nearly twice the match (and on a reasonable contribution rate) Those poor high earners lose a huge chunk of their former match, though. Bet they'd hate that. Hmm, who do you suppose are formulating these policies? If the higher earners want to grant themselves larger matches, they'd need to grant everyone larger matches. Yes, chances are most lower earners couldn't afford to contribute enough to earn the full match, but why stoke their resentment by teasing them with unattainable benefits. Better to define "fair" differently and keep the lower earners grateful for the percentage they can get in matching. This is rather hilarious I'm afraid and I'm not sure how you are arriving at this line of thought. The end of the line is just pay everyone the same amount and be done with it. Parity is achieved. The 10 highly paid people would leave/never come on board in the first place. That has serious ramifications for the company.
|
|
Rukh O'Rorke
Junior Associate
Joined: Jul 4, 2016 13:31:15 GMT -5
Posts: 9,985
|
Post by Rukh O'Rorke on Jan 17, 2020 12:26:14 GMT -5
My fix is employer contribution not tied to employee and no delays on vesting. You hire somebody, you start depositing in their 401k with the first paycheck. I think that's a fine fix given that people understand that if they're someone who takes advantage of the max match today, the future contribution is likely to decrease. The "pie" of 401k contributions for an employer isn't likely to change, so if they're giving it out to everyone instead of only to people to contribute themselves, there are more slices but the slices are smaller. I think that's fine, because I think it's more up-front in the benefit anyways. At my current employ, you get a percent of salary into your 401k regardless of whether you contribute or not. There is an additional bucket that matches based on your contribution. I need to make it to year 3 to vest - but I'm not sure I will!
|
|
Rukh O'Rorke
Junior Associate
Joined: Jul 4, 2016 13:31:15 GMT -5
Posts: 9,985
|
Post by Rukh O'Rorke on Jan 17, 2020 12:32:08 GMT -5
My fix is employer contribution not tied to employee and no delays on vesting. You hire somebody, you start depositing in their 401k with the first paycheck. I think that's a fine fix given that people understand that if they're someone who takes advantage of the max match today, the future contribution is likely to decrease. The "pie" of 401k contributions for an employer isn't likely to change, so if they're giving it out to everyone instead of only to people to contribute themselves, there are more slices but the slices are smaller. I think that's fine, because I think it's more up-front in the benefit anyways. oh - and the real point about this is that as is - it is an illusory part of compensation. You take a job and one of the features is a nice match - but you run into financial trouble and can't contribute after all. So - your compensation is reduced. Just when you are struggling financially - maybe with a sick child or elderly parent. Why? Just because you need every cent for bills at the moment? Or - you take the job and it doesn't work - you get canned in the probationary period. You didn't vest in any of the 401k. Maybe you left your previous employer before vesting - leaving 10k on the table - and now you didn't vest at the new place - you are out of work and nothing from the past 2 employers in your retirement kitties.. I just feel like the match part and vesting schedule is an employer playing games and hoping to trip you up to save a few bucks.
|
|
teen persuasion
Senior Member
Joined: Dec 20, 2010 21:58:49 GMT -5
Posts: 4,026
|
Post by teen persuasion on Jan 17, 2020 13:46:00 GMT -5
I think that's a fine fix given that people understand that if they're someone who takes advantage of the max match today, the future contribution is likely to decrease. The "pie" of 401k contributions for an employer isn't likely to change, so if they're giving it out to everyone instead of only to people to contribute themselves, there are more slices but the slices are smaller. I think that's fine, because I think it's more up-front in the benefit anyways. At my current employ, you get a percent of salary into your 401k regardless of whether you contribute or not. There is an additional bucket that matches based on your contribution. I need to make it to year 3 to vest - but I'm not sure I will! I like the idea of a fixed contribution, regardless of whether you contribute or not. That is more clearly a part of your total compensation package. I'm not sure many employers choose that option, though. Most that actually offer any employer contribution make it contingent on matching the employee's contribution. As your other post pointed out, many employees effectively forego part of their compensation because they don't/can't contribute enough. Still don't like the idea that the size of the retirement match of an employee's compensation package depends on salary size. Other benefits don't: health insurance, HSA contribution, dental, etc., are not tied to salary at all. Actually, at one of DH's previous employer's, health insurance contributions were negatively tied to salary - lower income got a higher employer contribution, higher income got a lower employer contribution (or a lower subsidy, if you will). There were 3 income tiers: under $30k, between $30k and $50k, over $50k. The employer essentially gave you health insurance $, and you could choose one of 3 health insurance options: low, medium, high priced. The lowest income group got an insurance $ allotment that made the medium level free, or the lowest level would put the excess $ in your take home pay (effectively a pay boost). The middle income level had an insurance $ allotment that made the lowest level free, and you had to contribute extra to pay either the medium or high health insurance. The over $50k income group had to kick in something towards health insurance regardless of which level they chose, there was no free level for them.
|
|
teen persuasion
Senior Member
Joined: Dec 20, 2010 21:58:49 GMT -5
Posts: 4,026
|
Post by teen persuasion on Jan 17, 2020 14:03:55 GMT -5
Even before these extra perks that only exist for execs, I hate the way the matching is usually defined, based on a percentage of your salary, not your contributions. For example, if a couple both work for the same employer, but one makes $30k and the other makes $300k. If both are over age 50, both can contribute $26k to a 401k. If the match is up to 5% of their salary, the lower earner's match is $1.5k, while the higher earner's match is $15k! They contributed the same, why isn't the match the same? Generally in our progressive financial system, the higher earners pay a higher tax rate, or have benefits phased out at a higher rate than the lower earner, on the basis that the lower earner has less disposable income, and the higher earner has more disposable income. Income tax - rates increase with increasing income. Social security - below first bend point, 90% income replacement; above first bend point, 32% ; above second bend point, 15% (decreasing return from greater total earnings). Financial aid - expected family contribution rates increase like tax rates increase at higher incomes. But for matching retirement funds, lower earners get a fraction of what higher earners do, even if contributing the same total? Why not make matching a percentage of contributions, period? Because it's part of your compensation package? It isn't a "gift" to the employee - It is the same as the pensions they replaced - not the same for everyone, and based on your contribution to the company. 401ks didn't replace pensions where pensions never existed. And some employers have both pensions and 401k or similar plans, like 403b. I know few people who have access to pensions these days, except for teachers in districts (so, not my DH). They pay into their pension plan, it's not a "gift", either. Given that the pay in is a percentage of their salary while working, and years worked, etc, it makes sense that the pension payout is reflective of contributions from working salary.
|
|
Rukh O'Rorke
Junior Associate
Joined: Jul 4, 2016 13:31:15 GMT -5
Posts: 9,985
|
Post by Rukh O'Rorke on Jan 17, 2020 14:33:59 GMT -5
Because it's part of your compensation package? It isn't a "gift" to the employee - It is the same as the pensions they replaced - not the same for everyone, and based on your contribution to the company. 401ks didn't replace pensions where pensions never existed. And some employers have both pensions and 401k or similar plans, like 403b. I know few people who have access to pensions these days, except for teachers in districts (so, not my DH). They pay into their pension plan, it's not a "gift", either. Given that the pay in is a percentage of their salary while working, and years worked, etc, it makes sense that the pension payout is reflective of contributions from working salary.keep going....
|
|
teen persuasion
Senior Member
Joined: Dec 20, 2010 21:58:49 GMT -5
Posts: 4,026
|
Post by teen persuasion on Jan 17, 2020 14:52:13 GMT -5
Rukh and hoops, thanks for the feedback on my somewhat ranty ideas.
Seeing a different viewpoint shows me things I don't usually see. The comments about total compensation package are especially helpful. I know my DH doesn't even think about things from that aspect. To him, salary is everything. When he took a job a while back, he thought he was getting at least as much in pay as his previous job, if not more (because new job had a 401k match, and old job had cut the match to zero in 2008). What he neglected to figure in was the wildly divergent cost of health insurance. Old job had the zero cost HI plus put nearly $2k in an HSA for him. New job HI cost $4k annually and zero HSA contribution. The match was not much, and the vesting schedule meant he lost most of it when he left a few years later (and old job still had a profit sharing contribution to the 401k even after the match was cut).
I think many employees neglect figuring out the total compensation package when evaluating jobs, and focus primarily on income, especially at the lower income side of the curve. Higher income employees have a lot more perks built into their compensation, deliberately, because of the tax implications at higher income levels. Thus they are probably more finely attuned to parsing the details.
I've spent a lot of time on Bogleheads, and the discussions of retirement account matches and mega backdoor Roth contribution limits and multiple options to contribute to like 457s on top of other account types are eye opening to someone who has had to beg for even a crappy SIMPLE IRA to get retirement $ in my name. It's quite clear that the more astronomical the pay rate, the better the retirement account options available, too. Plans that match 100%, no max (other than IRS contribution limits), after tax contribution option with easy roll out to Roth IRA or internal IRR.
So I start running the numbers on imaginary scenarios if I had access to such a plan. That's when I realized how insidious the match as a proportion of income is. These high income earners could only contribute something close to 5 or 8% of their income, anyway, so the full match was nearly equal to their contribution. Then they looked for somewhere else to stash the rest of their unneeded income. Meanwhile low income earners' match is a tiny proportion in comparison, even if they save a similar contribution.
It's the disproportion that bothers me. So many other financial aspects have either a flat limit, or a progressive system. Income taxes: the standard deduction gives everyone a baseline income exempt from tax, and then tax is applied at increasing rates as income increases. Financial aid for college: the income protection allowance gives everyone a baseline income exempt from inclusion in expected family contribution, and then applies a rate to remaining income at increasing rates. Social security: adjusted monthly income is multiplied by 90% below the first bend point, 32% to the second bend point, and 15% above the bend point, producing a higher SS benefit for lower earners, and less for higher earners.
Yet the match as percentage of income turns this on its head, penalizing the lower earner rather than making the benefit at least equal for an equal contribution.
|
|
Deleted
Joined: Mar 29, 2024 8:49:14 GMT -5
Posts: 0
|
Post by Deleted on Jan 18, 2020 9:31:52 GMT -5
Rukh and hoops, thanks for the feedback on my somewhat ranty ideas. Seeing a different viewpoint shows me things I don't usually see. The comments about total compensation package are especially helpful. <snip> I think many employees neglect figuring out the total compensation package when evaluating jobs, and focus primarily on income, especially at the lower income side of the curve. Higher income employees have a lot more perks built into their compensation, deliberately, because of the tax implications at higher income levels. Thus they are probably more finely attuned to parsing the details. For the longest time, the conventional wisdom was that when interviewing you focused on the job, the opportunities, etc. and that it was tacky to ask about benefits. When I got my first job out of college, in 1975, I just ASSUMED it included health insurance with a reasonable employee contribution. (It did.) Now, benefit packages are all over the place. My favorite cautionary tale was from over 20 years ago, when a friend was looking to change jobs. She negotiated really hard for a $5K increase so she could ditch her early- AM gig delivering newspapers before her "real" job started. She got it- and then found that the employee contribution to health insurance was- $5,000/year. Her DH was self-employed (and had cardiac problems) and they had 2 daughters at home. There went the "raise". I think the advice now is to wait till you get an offer but then ask very detailed questions about the benefits.
|
|
raeoflyte
Senior Associate
Joined: Feb 3, 2011 15:43:53 GMT -5
Posts: 14,632
|
Post by raeoflyte on Jan 18, 2020 12:28:49 GMT -5
You have to ask about benefits. I had interviewed and received an offer for a job and when I got the insurance info the out of pocket max was $38k. I asked about it and was met with responses shocked that I noticed and cared. That job could have bankrupted us and that was before I had a kid with an expensive autoimmune disorder to treat.
|
|
Tiny
Senior Associate
Joined: Dec 29, 2010 21:22:34 GMT -5
Posts: 13,357
|
Post by Tiny on Jan 18, 2020 12:51:37 GMT -5
Just throwing this out there (as I know every employer is different as is the type of jobs/work someone might be doing)
You can negotiate the vesting period on a 401K (and possibly even your match or how much the employer will contribute). I managed to avoid the silly vesting thing at 2 jobs. One employer gave me access to the 401K on day one, another made me wait until the 90 day probation was up. Otherwise it would have been a one year 'wait' before I could contribute. I negotiated some other "non salary" type perks as well. Did this during the part that came right before they made me an offer OR immediately after I got my "offer letter". I even took a job that "paid" less because the benefits (with some I negotiated) gave me a 5K per year raise over my previous job.
If you are negotiating "salary" or "pay" - then the benefits offered are part of that and there should be some wiggle room. Employers do this for high pay employees.. they can make exceptions for their mid pay employees, too.
|
|
plugginaway22
Well-Known Member
Joined: Jan 2, 2011 10:18:42 GMT -5
Posts: 1,650
|
Post by plugginaway22 on Jan 18, 2020 15:16:04 GMT -5
Not true about exceptions. Employer must follow the established plan document. Negotiations happen with salary if there is a year wait to join the plan. Same with vesting schedule and match.
|
|
hoops902
Senior Associate
Joined: Dec 22, 2010 13:21:29 GMT -5
Posts: 11,978
|
Post by hoops902 on Jan 20, 2020 8:41:27 GMT -5
Yet the match as percentage of income turns this on its head, penalizing the lower earner rather than making the benefit at least equal for an equal contribution. If you think of it as a piece of total compensation though, where you see "penalize" I see "gives lower earners more of their compensation in cash which they need to get by" than a flat match structure does. If you go to a flat match structure, then you're reducing the cash a lower earner receives, which simultaneously likely restricts their ability/interest in investing the money to GET the match. So for practicality, for many lower earners, they wouldn't be investing in the 401k to GET the match, and because they are offered a higher ceiling on the match may actually earn less take-home pay as well. Whether it is in their best interest or not, I would wager that MOST low earners would prefer to take their entire compensation home in cash if they could. Heck there are plenty of aspects I'd love to convert to take-home cash as well...any benefit you choose not to use or cannot use is better individually to take home in pay than it is to sit unused.
|
|
teen persuasion
Senior Member
Joined: Dec 20, 2010 21:58:49 GMT -5
Posts: 4,026
|
Post by teen persuasion on Jan 20, 2020 12:42:44 GMT -5
Yet the match as percentage of income turns this on its head, penalizing the lower earner rather than making the benefit at least equal for an equal contribution. If you think of it as a piece of total compensation though, where you see "penalize" I see "gives lower earners more of their compensation in cash which they need to get by" than a flat match structure does. If you go to a flat match structure, then you're reducing the cash a lower earner receives, which simultaneously likely restricts their ability/interest in investing the money to GET the match. So for practicality, for many lower earners, they wouldn't be investing in the 401k to GET the match, and because they are offered a higher ceiling on the match may actually earn less take-home pay as well. Whether it is in their best interest or not, I would wager that MOST low earners would prefer to take their entire compensation home in cash if they could. Heck there are plenty of aspects I'd love to convert to take-home cash as well...any benefit you choose not to use or cannot use is better individually to take home in pay than it is to sit unused. Interesting viewpoint. So you'd have the matching rules intentionally limit lower earners' maximum match, on the premise that lower earners need all of their compensation as take home. They essentially can't afford to save anything for retirement, so they shouldn't have the option of retirement matches that might tempt them to defer even a little bit for retirement. Higher earners, on the other hand, have more disposable income, thus can afford to defer some to retirement, and are ok to get a larger maximum match towards retirement accounts. See, I'd think that if anyone SHOULD get preferential match treatment (instead of equal, as I'd prefer), it should be those lower income earners. If they truly can't afford to defer anything, how will they build a retirement balance? If they can be nudged to defer a tiny bit (thru matches) shouldn't they get the same $ amount per $ deferred? Why should the earners with the most disposable income merit a larger match, they already have more extra income to defer to retirement accounts? From personal experience, capturing a match encourages low income earners to at least begin contributing something to retirement accounts. The lack of a match encourages them to stop contributing. DH contributed 5% to his 401k to get the match. After years of doing this on auto pilot, as soon as he heard the employer was dropping the match in 2008 due to the recession, his knee jerk reaction was "well, I should quit contributing now, right?" I was aghast - no, you should double your contribution to make up for the lost match! To prove we could afford to do this, I first examined what was being withheld from his paycheck and my options. Turns out he could switch to a cheaper health insurance option. Then I tweaked his tax withholding, as I realized we didn't need any tax withheld due to refundable credits with the kids. Doubled the 401k contribution, almost zero change to take home. At tax time, I had another revelation - the lower AGI and w2 wages not only meant lower tax, but larger credits, and state credits dependent on them, too. Crunched the numbers, and whenever we eliminated an expense (like student loans) or got a tiny rise in income, I doubled the 401k contribution again. And again. Those refundable tax credits kept growing - I first earmarked them for paying down our ugly 9.75% mortgage (to eliminate our biggest drain on income, to free even more for retirement saving). Refunds of $3.5k eventually became $10-11k. Once the mortgage was gone, I finally bumped his 401k contributions to 55% to hit the max contribution. The tax refunds were redirected to new Roth IRAs for both of us. So he went from 5% contributions (maybe $1750 annually) in 2007/8 to maxing a 401k plus 2 Roth IRAs by 2010. Contributing to employer traditional 401ks or the like are very useful to lower income earners, especially with kids in the picture. The marginal tax rate for them is much higher than you'd think based on their bracket, because of phaseout rates on EITC on top of tax rates. EITC phaseout is 21%; my state matches federal EITC at 30%, so that's essentially another 6.3% phaseout. Add in federal tax at 10% and state tax at 4% (lowest brackets) and you've got a marginal rate of 41.3%. IOW, for a contribution of $1k annually, a low income earner could get a tax refund of an additional $431. Oh, wait, that's ignoring the retirement Saver's credit, too. So while many low income earners might THINK they need every $ they can finagle in their take home check, encouraging retirement account deferrals (thru fair employer matches) could be a win-win.
|
|
Miss Tequila
Distinguished Associate
Joined: Dec 19, 2010 10:13:45 GMT -5
Posts: 20,602
|
Post by Miss Tequila on Jan 20, 2020 12:51:15 GMT -5
Well, I think the middle class needs to start paying taxes. Last year, we grossed 85K, and paid 0 in taxes. Got more back than we paid in because the CTC is refundable now. I haven't played around...but I'm betting we could get close to grossing 100K and still not pay anything in taxes. We don't live in a VHOCLA, so that's not poverty income.
No, the unmarried, no children Middle Class is taxed enough, thankyou very much. There's no way I can get my Federal taxes to 0 on an 85K salary without a hubby or kids (not even with a money pit rental property...) . I would be paying approx 15k in federal tax. I could lower that my contributing to pretax retirement - but I'm still paying taxes just less. I think Middle Class Marrieds and those with kids need to start paying their fair share. Don't make me pay even more so you can pay a couple thousand a year while still getting all your deductions/credits/exemptions for being married with kids. I was a middle class married and we got no benefit. We paid more as married people than if we were two single people except you couldn't file married filing separately because then you were penalized. We couldn't even benefit from the child tax credit because of the phase out. It is the people that have a non-working spouse that make out. Now, having a boat load of kids will reduce your taxes and I do not think that is right, either. But prior to the tax changes, buying a house versus renting also reduced your taxes. Why should a homeowner pay less in taxes just because they bought a house versus renting? And buying a more expensive house with a corresponding huge real estate tax bill also reduced your taxes. Not fair to those of us that live in modest homes or in low tax states...but that was fixed with the tax reform and there was a damn uproar over it.
|
|
Deleted
Joined: Mar 29, 2024 8:49:14 GMT -5
Posts: 0
|
Post by Deleted on Jan 20, 2020 13:00:09 GMT -5
No, the unmarried, no children Middle Class is taxed enough, thankyou very much. There's no way I can get my Federal taxes to 0 on an 85K salary without a hubby or kids (not even with a money pit rental property...) . I would be paying approx 15k in federal tax. I could lower that my contributing to pretax retirement - but I'm still paying taxes just less. I think Middle Class Marrieds and those with kids need to start paying their fair share. Don't make me pay even more so you can pay a couple thousand a year while still getting all your deductions/credits/exemptions for being married with kids. I was a middle class married and we got no benefit. We paid more as married people than if we were two single people except you couldn't file married filing separately because then you were penalized. We couldn't even benefit from the child tax credit because of the phase out. It is the people that have a non-working spouse that make out. Now, having a boat load of kids will reduce your taxes and I do not think that is right, either. But prior to the tax changes, buying a house versus renting also reduced your taxes. Why should a homeowner pay less in taxes just because they bought a house versus renting? And buying a more expensive house with a corresponding huge real estate tax bill also reduced your taxes. Not fair to those of us that live in modest homes or in low tax states...but that was fixed with the tax reform and there was a damn uproar over it. The child tax credit doubled to 2K/child with the new law and phaseout doesn't start until 400K AGI for married filing joint, so a lot more people can benefit from it now.
|
|
hoops902
Senior Associate
Joined: Dec 22, 2010 13:21:29 GMT -5
Posts: 11,978
|
Post by hoops902 on Jan 20, 2020 13:18:46 GMT -5
If you think of it as a piece of total compensation though, where you see "penalize" I see "gives lower earners more of their compensation in cash which they need to get by" than a flat match structure does. If you go to a flat match structure, then you're reducing the cash a lower earner receives, which simultaneously likely restricts their ability/interest in investing the money to GET the match. So for practicality, for many lower earners, they wouldn't be investing in the 401k to GET the match, and because they are offered a higher ceiling on the match may actually earn less take-home pay as well. Whether it is in their best interest or not, I would wager that MOST low earners would prefer to take their entire compensation home in cash if they could. Heck there are plenty of aspects I'd love to convert to take-home cash as well...any benefit you choose not to use or cannot use is better individually to take home in pay than it is to sit unused. See, I'd think that if anyone SHOULD get preferential match treatment (instead of equal, as I'd prefer), it should be those lower income earners. If they truly can't afford to defer anything, how will they build a retirement balance? If they can be nudged to defer a tiny bit (thru matches) shouldn't they get the same $ amount per $ deferred? Why should the earners with the most disposable income merit a larger match, they already have more extra income to defer to retirement accounts? If you think they're going to actually match, this theory works great. But for every dollar of match you offer, you reduce their take-home pay by the same amount. But then this isn't really a fairness question, it's more of a question of manipulating people's behaviors and incentivizing them to save for retirement. And subsequently punishing lower earners who don't use the match, because their take-home pay is reduced as if they take full advantage of it. And you say higher earners "merit" a larger match...but as has been pointed out, this is POTENTIAL money, not absolute. So the other way to look at it is: Which group of people should have more guaranteed compensation? Those with lower income or those with higher income. The current setup provides a higher guaranteed compensation for lower individuals than they'd get with an "equal" match. Your suggestion is "preferential match treatment", but preferential MATCH treatment is LESS PREFERENTIAL take-home pay treatment. It's all one bucket, you're just moving money from one bucket to another (401k match vs take-home pay). I think in terms of long-term incentive, we certainly want lower earners putting more money away for retirement. But if people make $31.5k/year and take it all in their paycheck, and don't save any of it for retirement...why would we think the same person bringing home $28.5k is going to decide to put $3k away to get the match? The BEST case scenario is that person still gets a total compensation of $31.5k, you're just FORCING them to take some of their pay in retirement savings if they want to get it all. I'm not sure many people would say it is "preferential" treatment to forcibly control their money like that. I agree with you that it works out well long-term if you can provide the incentive and if people actually DO it. But if they DON'T do it, then low earners are actually left with LESS money overall than they have under the current system. As such, it sounds far less like something low earners would want, it's essentially an admission of (we can't make our own decisions, force us to save for retirement) and something the rich would be in GREAT favor of (we'll give you your pay in a method which you might not be able to take advantage of, and therefore we pay you less while pretending we pay you more). In general, people want more control over their money rather than less.Low or high earner, if you ask me how I'd want my pay, I'd want it ALL in my paycheck. Don't match my 401k at all, don't offer me tuition reimbursement, don't offer me healthcare. Give me the MONEY. If I make bad money decisions that might not be the best thing FOR me, but it's what I want. I don't want theoretical tuition reimbursement dollars that I could get, I want real dollars that I WILL get.
|
|
hoops902
Senior Associate
Joined: Dec 22, 2010 13:21:29 GMT -5
Posts: 11,978
|
Post by hoops902 on Jan 20, 2020 13:28:17 GMT -5
I look at matches this way (and I think it's a pretty accurate depiction):
I have $10k in my hands, and I tell you that I'm going to give you $10k.
I can either hand you the $10k, and you can go and do what you want with it.
OR
I can put conditions on you receiving the $10k into an account that has restrictions on it. An account that you could just as easily put the $10k into if I handed it to you in the first option. And in order to get that $10k you also have to come up with your own $10k first so that I will match it.
If I'm going to give you the same thing either way, most people would just prefer not to have restrictions on receiving the money. Only the most self-aware bad money managers would probably want the restriction (my brother is one of these people, he'd rather you put the money into a restriction than trust him to do it himself).
In general though, it hardly seems like preferential treatment to put MORE restrictions on someone's money than LESS.
|
|
teen persuasion
Senior Member
Joined: Dec 20, 2010 21:58:49 GMT -5
Posts: 4,026
|
Post by teen persuasion on Jan 20, 2020 13:47:41 GMT -5
...And subsequently punishing lower earners who don't use the match, because their take-home pay is reduced as if they take full advantage of it.And you say higher earners "merit" a larger match...but as has been pointed out, this is POTENTIAL money, not absolute. Ah, I've finally gotten into your viewpoint with this quote - if compensation package includes matches, then increasing maximum match MUST decrease wages by an equal amount. Ergo, lower earners get a wage cut whenever their other compensation increases, to keep the employer's costs equal. From a math equation perspective, I get it, and can appreciate the reasoning. But do all employers actually do this? When DH's employer cut the match altogether, they didn't offer a wage increase (ha, wages had been flat for years). A single employee doesn't get a higher wage than a married employee because the amount the employer towards health insurance is less. He also doesn't get his wages reduced when he marries or adds kids. (Not talking about the employee's contributions toward HI, those often do rise, but about the $ amount the employer contributes behind the scenes, single vs family plan costs).
|
|
Miss Tequila
Distinguished Associate
Joined: Dec 19, 2010 10:13:45 GMT -5
Posts: 20,602
|
Post by Miss Tequila on Jan 20, 2020 13:49:32 GMT -5
I was a middle class married and we got no benefit. We paid more as married people than if we were two single people except you couldn't file married filing separately because then you were penalized. We couldn't even benefit from the child tax credit because of the phase out. It is the people that have a non-working spouse that make out. Now, having a boat load of kids will reduce your taxes and I do not think that is right, either. But prior to the tax changes, buying a house versus renting also reduced your taxes. Why should a homeowner pay less in taxes just because they bought a house versus renting? And buying a more expensive house with a corresponding huge real estate tax bill also reduced your taxes. Not fair to those of us that live in modest homes or in low tax states...but that was fixed with the tax reform and there was a damn uproar over it. The child tax credit doubled to 2K/child with the new law and phaseout doesn't start until 400K AGI for married filing joint, so a lot more people can benefit from it now. No one with an AGI of $400k needs a child tax credit. My children have aged out so I wasn't up on the phase out limits. I didn't need the child tax credits at my income level so it is crazy that we have now up the limits to capture even more people who do not need child tax credits. I wish we would stop using income taxes for social engineering.
|
|
Miss Tequila
Distinguished Associate
Joined: Dec 19, 2010 10:13:45 GMT -5
Posts: 20,602
|
Post by Miss Tequila on Jan 20, 2020 13:54:09 GMT -5
...And subsequently punishing lower earners who don't use the match, because their take-home pay is reduced as if they take full advantage of it.And you say higher earners "merit" a larger match...but as has been pointed out, this is POTENTIAL money, not absolute. Ah, I've finally gotten into your viewpoint with this quote - if compensation package includes matches, then increasing maximum match MUST decrease wages by an equal amount. Ergo, lower earners get a wage cut whenever their other compensation increases, to keep the employer's costs equal. From a math equation perspective, I get it, and can appreciate the reasoning. But do all employers actually do this? When DH's employer cut the match altogether, they didn't offer a wage increase (ha, wages had been flat for years). A single employee doesn't get a higher wage than a married employee because the amount the employer towards health insurance is less. He also doesn't get his wages reduced when he marries or adds kids. (Not talking about the employee's contributions toward HI, those often do rise, but about the $ amount the employer contributes behind the scenes, single vs family plan costs). When I was considering whether or not take accept my current position, I looked at total compensation. If there was no employer match, I would not have accepted my current level of pay. As for the insurance, I know several companies that only cover the employee. If you want to add a spouse or children you must pay 100% of the cost. I actually recommended that at my last company to control the health insurance costs. We opted not to go that route that year but they very well might in the future.
|
|
Deleted
Joined: Mar 29, 2024 8:49:14 GMT -5
Posts: 0
|
Post by Deleted on Jan 20, 2020 14:04:06 GMT -5
The child tax credit doubled to 2K/child with the new law and phaseout doesn't start until 400K AGI for married filing joint, so a lot more people can benefit from it now. No one with an AGI of $400k needs a child tax credit. My children have aged out so I wasn't up on the phase out limits. I didn't need the child tax credits at my income level so it is crazy that we have now up the limits to capture even more people who do not need child tax credits. I wish we would stop using income taxes for social engineering. There's also a new $500 "non-child" dependent credit for over the age of 17 if you still claim your kids. 200K AGI limit for single filers before phase out.
|
|
hoops902
Senior Associate
Joined: Dec 22, 2010 13:21:29 GMT -5
Posts: 11,978
|
Post by hoops902 on Jan 20, 2020 14:06:17 GMT -5
...And subsequently punishing lower earners who don't use the match, because their take-home pay is reduced as if they take full advantage of it.And you say higher earners "merit" a larger match...but as has been pointed out, this is POTENTIAL money, not absolute. Ah, I've finally gotten into your viewpoint with this quote - if compensation package includes matches, then increasing maximum match MUST decrease wages by an equal amount. Ergo, lower earners get a wage cut whenever their other compensation increases, to keep the employer's costs equal. From a math equation perspective, I get it, and can appreciate the reasoning. But do all employers actually do this? When DH's employer cut the match altogether, they didn't offer a wage increase (ha, wages had been flat for years). A single employee doesn't get a higher wage than a married employee because the amount the employer towards health insurance is less. He also doesn't get his wages reduced when he marries or adds kids. (Not talking about the employee's contributions toward HI, those often do rise, but about the $ amount the employer contributes behind the scenes, single vs family plan costs). Employers don't do it at an individual level, but at a group level definitely. When an employer cuts the match, it's likely an alternative to cutting wages (or reducing an increase in wages). A single employee doesn't get a higher wage than a married employee...that's what we're talking about when we say hypothetical dollars or illusory dollars. I don't get higher wages just because I won't take advantage of the tuition reimbursement either. That's why I'd rather have my payment in CASH. I'll almost certainly never capture the benefits of all of the non-cash compensation I'm eligible for, as most people won't. And obviously if the methodology just flipped today to give more match, you wouldn't likely see an immediate flip of the decrease in wages. But you'd see it level itself out over time (again either as a wage decrease, or more likely a lower starting salary for any new employees, a reduction in wage increases, etc). It might be an immediate advantage as things work themselves out, but that's a blip really. Long term it evens itself out, employers care about total outflows of money in compensation. So an employer who hires Single Joe doesn't care much that Joe is Single in terms of health insurance. Long term they likely know that about X% of their work force is married, or has kids, or both, or will opt out of the insurance. And if WAY too many people get married and have kids and insurance skyrockets...you'll just see the employee contribution portion of the insurance go up. If I planned to spend about $25 million on health insurance each year as the employer, and it's been running at 26, 28, 30 million as I'm attracting lots of expensive employees...I just adjust the insurance contributions of employees in some way...raising everyone by a %, raising the cost of those who are married or have kids, etc.
|
|
hoops902
Senior Associate
Joined: Dec 22, 2010 13:21:29 GMT -5
Posts: 11,978
|
Post by hoops902 on Jan 20, 2020 14:11:34 GMT -5
Ah, I've finally gotten into your viewpoint with this quote - if compensation package includes matches, then increasing maximum match MUST decrease wages by an equal amount. Ergo, lower earners get a wage cut whenever their other compensation increases, to keep the employer's costs equal. From a math equation perspective, I get it, and can appreciate the reasoning. But do all employers actually do this? When DH's employer cut the match altogether, they didn't offer a wage increase (ha, wages had been flat for years). A single employee doesn't get a higher wage than a married employee because the amount the employer towards health insurance is less. He also doesn't get his wages reduced when he marries or adds kids. (Not talking about the employee's contributions toward HI, those often do rise, but about the $ amount the employer contributes behind the scenes, single vs family plan costs). When I was considering whether or not take accept my current position, I looked at total compensation. If there was no employer match, I would not have accepted my current level of pay. As for the insurance, I know several companies that only cover the employee. If you want to add a spouse or children you must pay 100% of the cost. I actually recommended that at my last company to control the health insurance costs. We opted not to go that route that year but they very well might in the future. I think we had a thread at one point that I think really highlighted the total compensation (and something I considered before I took my current job). Companies that offer good on-site childcare that is subsidized or free. I would expect that kind of company to have a TON of employees with kids. They're offering a potentially HUGE compensation with that...big enough that their wages likely aren't competitive for someone who isn't going to take advantage of that compensation.
|
|
Miss Tequila
Distinguished Associate
Joined: Dec 19, 2010 10:13:45 GMT -5
Posts: 20,602
|
Post by Miss Tequila on Jan 20, 2020 14:23:48 GMT -5
No one with an AGI of $400k needs a child tax credit. My children have aged out so I wasn't up on the phase out limits. I didn't need the child tax credits at my income level so it is crazy that we have now up the limits to capture even more people who do not need child tax credits. I wish we would stop using income taxes for social engineering. There's also a new $500 "non-child" dependent credit for over the age of 17 if you still claim your kids. 200K AGI limit for single filers before phase out. Ridiculous...and I obviously need to read up on the tax changes. I focus mainly on real estate tax issues for my rentals. And I hire a CPA (while I AM a CPA, I was never a tax CPA) so I am not diving into nitty gritty details. I do not need a $500 dependent credit. I will take it, obviously, but I sure as hell do not need it. I want to do away with social engineering but instead, we are just increasing who benefits from it. GRRRR....
|
|
Miss Tequila
Distinguished Associate
Joined: Dec 19, 2010 10:13:45 GMT -5
Posts: 20,602
|
Post by Miss Tequila on Jan 20, 2020 14:27:38 GMT -5
When I was considering whether or not take accept my current position, I looked at total compensation. If there was no employer match, I would not have accepted my current level of pay. As for the insurance, I know several companies that only cover the employee. If you want to add a spouse or children you must pay 100% of the cost. I actually recommended that at my last company to control the health insurance costs. We opted not to go that route that year but they very well might in the future. I think we had a thread at one point that I think really highlighted the total compensation (and something I considered before I took my current job). Companies that offer good on-site childcare that is subsidized or free. I would expect that kind of company to have a TON of employees with kids. They're offering a potentially HUGE compensation with that...big enough that their wages likely aren't competitive for someone who isn't going to take advantage of that compensation. For me, the huge benefit would have been having the children on-site when they were babies. Either way you are paying for it, either with reduced compensation or paying out of pocket. But at this stage of my life, I would have no need for free childcare and would never work for a company that didn't pay me what I'm worth with benefits that I want/need.
|
|
teen persuasion
Senior Member
Joined: Dec 20, 2010 21:58:49 GMT -5
Posts: 4,026
|
Post by teen persuasion on Jan 20, 2020 14:40:02 GMT -5
When I was considering whether or not take accept my current position, I looked at total compensation. If there was no employer match, I would not have accepted my current level of pay. As for the insurance, I know several companies that only cover the employee. If you want to add a spouse or children you must pay 100% of the cost. I actually recommended that at my last company to control the health insurance costs. We opted not to go that route that year but they very well might in the future. But in DH's case, he'd worked there 5+ years when the match was yanked away. Would you quit in protest? During a recession? The health insurance issue is complicated. Yes, some companies do only cover the employee. But then they pay just enough that the family is not eligible to get subsidized insurance for the other members. I don't like that inconsistent rule, either. If health insurance greater than 9.8% of their income is considered too expensive, making you eligible for ACA coverage, then that should be testing the entire family's insurance cost vs 9.8% of the entire family's income, or if the per employee/person 9.8% is maintained then the non-covered family members are tested separately, too. Or they have the option to forego the employer insurance altogether without being made ineligible for ACA coverage/subsidies. They would still need to meet income guidelines...
|
|