Why Facebook is modifying its 401k plans

If you thought saving for retirement was difficult, it got even more strenuous at Facebook Inc. (NASDAQ:FB). However, Facebook isn’t the only company engaging in such practices. Other companies have decided to alter their 401(k) plans, as well.

Some of the strategies include postponing vesting schedules, lowering the amounts of matching funds and changing the timing of the matches. This means you have to work even harder if you want to retire in a similar fashion to your parents or your grandparents.

Even if a company decreases their funds matching by 3%, this can affect an employee’s lifetime career earnings by hundreds of thousands of dollars. Why has Facebook implemented these types of changes? The answers usually center around competition within their industry as well as the company’s bottom line initiatives.

Facebook 401kOn the other hand, Facebook does have an enviable and generous employee perk system for healthcare, vacation time, store discounts and bonuses. Over the past three decades 401(k) plans have made strides in retirement planning, being the most used choice as opposed to pensions these days. Its advantages include portability, in the event an employee leaves the company, increased investment options and more control.

In fact, 401(k)s were initially introduced in the 1970’s to help expand pensions. Now, 401(k)s are the norm and pensions are mostly a thing of the past. This year, workers are allowed to contribute up to $17,500 of pretax income and additional $5,500 for workers 50 and above.

Because 401(k)s aren’t mandatory, the way pensions were, Facebook can alter their system as they see fit. Since the contributions fall under payroll, any changes advantageous to Facebook can be felt instantly. Not only does it help improve profits, but it also lowers company expenses. In 2012 and 2013 Facebook didn’t offer any company matches. Despite the changes, Facebook remains a coveted place to work.

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