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Comment by peter_l_downs | Hacker News Reader

This looks really nice. Probably revealing my inexperience, but I have to wonder: is it possible for an employee to set up their own 401k account, and then have the employer donate to that account? Or is it only ever possible to get a 401k through an employer. It seems weird to me that something so tied to a single person (the 401k account) is provided again and again by different employers. If you work multiple places, do you end up with multiple 401k accounts? Is there some easy process to merge them all?

Never been able to find this information online, figured I'd ask in this thread, but apologies if this is all blindingly obvious. Would be happy to RTFM if someone could point me to the M.

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Here's some basic info: https://www.fidelity.com/retirement-planning/learn-about-ira...

Everywhere I've worked so far has both let me keep the existing account if I wanted when I left, and then also provided the option to rollover an old account into the new plan. Basically you fill out a form, send it to whoever the old account was with, and then get a check you can deposit in the new account through your new employer (or maybe the last step is electronic? I forget if I had to drop off a paper check at my current employer when I rolled over my old account). I generally do this, though I suppose I should look at fees and stuff in the future before just doing it blindly for convenience's sake of having everything in one place.

The dependence of 401k plans on companies might be an artifact of their genesis: 401k plans are designed to replace the "pension plans" of yore; as such, they are heavily regulated and each 401k is different. I've been told the legal documentation required for a 401k plan runs to the thousands of pages. Companies also want to manage the plans because, while supposedly cheaper to the company than pension plans, it still can affect their bottom line.

Just curious, why do you say they're supposedly cheaper than pensions? I don't have a lot of knowledge about how they're managed, but I can't imagine that much disparity in administrative fees.

And on the larger view, pensions represent a liability (I promise to pay Joe Sixpack 40% of his salary after ten years of service, some of which he will contribute to), while 401(k)s represent no liability at all. Work for the company 40 years and your 401(k) won't cover your retirement? Too bad. Should have contributed more or invested better; the company doesn't owe you anything. Or, for another example, if Joe lives to be 100 and he only planned for 76, that's a major problem with a 401(k), but a pension would still have to pay out, and it would be on the company's dime.

In addition, at least in my experience, company contributions to 401(k)s tend to be small and decreasing (for example, my company contributes a maximum of 3%, paid once a year) over time, and you have the additional complexity that vesting introduces, where (at least as I understand it), they can take it back if you quit roll your 401(k) over somewhere else.

So I'm not sure under what circumstances a 401(k) could ever not be cheaper. Are there some?

In addition, at least in my experience, company contributions to 401(k)s tend to be small and decreasing

Random change of subject, but did you ever wonder why some companies match 401(k) contributions? Or automatically give you a small contribution regardless if you decided to contribute yourself?

It's because 401(k) contributions for highly compensated employees (HCEs) are at risk of not getting the tax deferral unless the 401(k) plan meets a bunch of metrics including participation, etc.[1]

And you thought they were doing it out of the goodness of their hearts! ;)

[1] https://blog.personalcapital.com/retirement-planning/seeking...

> 401k plans are designed to replace the "pension plans" of yore

That's actually not really true. The 401(k) was an obscure provision in the Revenue Act of 1978 and it wasn't until two years later that Ted Benna realized it could be used as a loophole to set up an employer-matched retirement plan: http://www.learnvest.com/knowledge-center/your-401k-when-it-... It wasn't designed to be used this way, and that's not what the IRS had in mind when they originally drafted the rules.

Companies love them because they're cheaper than a pension plan, and crucially, they transfer all the risk and responsibility onto individual employees and away from the company.

Frankly, seeing in the 80s and 90s how pensions are counted as liabilities on the company's balance sheet and can be wiped away in an engineered bankruptcy, I'm quite happy transfer the risk away from the company.

That's a great question, and I'm sure you're not the only one that's confused. 401k's can only be offered by the employer, so an employee isn't able to set one up on their own. That's why we want to make it really easy for companies to get a 401k, so that we can expand people's access to them and help them save for retirement and get the tax benefits.

You do indeed have the option to merge multiple 401k accounts together after you leave your job.

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