In 401(k) Plans, a Little More Makes a Big Difference

For a company that has caught heat for the low wages it pays workers, McDonald’s has a retirement savings plan that’s surprisingly generous, matching 300 percent of the first 1 percent employees save in their 401(k) accounts. The fast-food chain also matches 100 percent of the next 4 percent of pay an employee contributes, and in the past two years it made a discretionary profit-sharing contribution of 2 percent. “We wanted to encourage people to start saving early in their careers,” says Lisa Emerson, McDonald’s vice president for global total compensation.

The design of 401(k) plans can vary significantly, and even small differences can add up to hundreds of thousands of dollars over the course of a career. Take the case of an employee with a starting salary of $31,000 at age 25, who was granted annual pay increases of 3 percent, reaching a final salary of $101,123 at age 65. Assume she made the average contribution for her age and that the portfolio generated an annual return of 5 percent. Under those conditions, the individual would have $999,231 if she worked at DuPont, where the top corporate match is 6 percent and the company kicks in an additional 3 percent of pay, according to Jack VanDerhei, research director at the Employee Benefit Research Institute. The same person would have ended up with $504,684 if she worked at Wynn Resorts, where the maximum match is $500.