Retirement Plans Often Overlooked in Job Hunt

Like couples who are loath to discuss estate planning before the wedding, workers often fail to study retirement plans as they consider a new job.

Focusing on salary alone, however, could leave a hole in the nest egg at retirement. There are important steps to take, experts said, to help evaluate retirement plans.

Say you have two job offers, one paying $50,000 per year and the other $47,000. The higher salary comes with no matching funds in the retirement plan, while the lower one comes with a 3 percent match if you contribute 6 percent.

Assuming you contribute 6 percent of your salary for 30 years, not including pay raises, you'd have $372,584 in your retirement plan at the higher-paying job, according to a calculator at Bankrate.com, which factored in 8 percent annual returns. But you'd have $525,343 with the match.

It pays to examine the retirement plan of any employer.

"Almost the last thing employees are looking at is the retirement plan," said Paul Dorf, managing director at Compensation Resources Inc., an Upper Saddle River, N.J., consulting firm. "For anybody under 40, there is a very strong likelihood that if they hear there is a 401(k), they will accept it without asking any questions. They are more concerned about tuition reimbursement."

Still, Dorf said the retirement plan tail shouldn't wag the salary dog. Although pay almost certainly will rise over a career, retirement benefits can be whisked away as companies hit tough times, he said.

Even career advancement can take precedence.

Eric Douglas, 57, a computer systems consultant in Golden, Colo., recently took a salaried position after having his own business for several years. Even with a retirement plan that kicks in 6 percent of his new salary, he was able to sock away far more as a self-employed worker.

"I was making a lot more on my own, too, but eventually I needed to update my skills, so this made sense," he said.

So how do you evaluate a potential employer's retirement plan?

Start by asking for a summary plan description, said Jerrold Levy, a partner in Chicago with Mercer Human Resource Consulting. This will give you the details on when you can join the plan, whether there is a waiting period to receive a company match and what the company will match on your savings.

Don't forget to ask about other opportunities for savings, such as profit-sharing plans, where the employer contributes a percentage of pay, or even defined-benefit pension plans.

"If there's a profit-sharing plan, ask if there is a minimum contribution amount that the employer will make on an annual basis," Levy said. "If there is not, get a five-year history" showing what the firm paid.

Next, ask for detailed descriptions of the mutual fund choices in the plan, said Lori Lucas, director of participant research for Hewitt Associates in Lincolnshire. Typically, employers offer single-page Morningstar Inc. sheets on each fund, which contain expense ratios and investment styles, she said.

This will help you decide if the investment choices are strong enough to roll over your old 401(k), or if you'd be better off in a self-directed individual retirement account.

If the plan offers proprietary funds, ask for a comparable public fund that will give you an idea of asset allocation, and ask for historical returns.

Once you have an offer in hand, if the new retirement plan doesn't measure up to your current or another prospective employer's plan, that is the time to negotiate, Dorf said.

"Once the company has committed to wanting to hire you, that's when you have the strongest leverage. You can say, `In order to come here, I have to walk away from X,'" he said. And because employers must offer the same retirement benefits to all employees in the plan, you'll have to ask for cash up front to make up for any insufficiencies.

Consider how the investment choices complement the rest of your portfolio.

"You can't manage assets in a vacuum, so the 401(k) plan is one of the first things I ask new clients about," said Bruce Weininger, a financial planner and portfolio manager with Kovitz Investment Group in Chicago. "We look to fill out the holes by taking the best fund or funds in the 401(k) plan and then rounding out" the asset classes in non-employer accounts, he said.

Finally, look inward and commit to a realistic savings rate.

"Ask yourself how much you will save under the plan out of your paycheck," Levy said.

If it's not much, the best plan won't do you much good.