Does Size Matter? Big vs. Small Company and What It Means for You
The Need2Save household is all a buzz these days about small college vs. big college opportunities. While we debate about the pros and cons of large campus vs. small campus options for our youngest son who is headed to college this fall, it got me thinking about post-college years and how your employment decisions can impact your ability to prepare for retirement.
It’s also relevant right now because our oldest son is working full-time but his job doesn’t come with some of those nice bennies that we all covet.
Does Big Always Mean Better?
It’s not that simple is it? Larger companies certainly are more likely than smaller ones to have deeper pockets and additional resources to throw at keeping employees happy, engaged and rewarded. But it can also depend greatly on what industry you are in and what the competitors are doing.
Company leaders of all sizes are paying attention to what the competition is doing. They may establish themselves as trend-setters by adopting new ideas early. They may want to be middle-of-the-road employers and do just what is needed to appear adequate for retention purposes. Or they may be okay with being slightly behind peers in order to be more profitable.
I consult for a very small employer (under 20 employees) who pays 100% for medical and dental coverage for every employee and their entire family. Wow! Too bad they don’t let me enroll in their plans for helping them out. Plus, since they are very small, they are a very close-knit group. One of those family-like atmospheres which the employees seem to really value. They look out for each other.
What this small company doesn’t have though is a high-deductible health plan with a Health Savings Account (HSA) or a bonus plan. If I worked directly for them, I would have to negotiate a higher base salary and I wouldn’t be able to save for my retirement with both a 401(k) and a HSA on a pre-tax basis. These are two programs that are extremely important to me as we near our early retirement finish line. Plus their 401(k) doesn’t have investment choices that I like and are subject to ridiculous high fees because of the small size of their plan.
Is the Grass Greener On the Other Side?
Whether you work for a small or small-ish company or a large one, you may wonder whether the perks would be better elsewhere.
I talk to many employees from all types of backgrounds when they join the company. Our company is currently around 5,000 employees so it’s really more mid-size, but large enough that we have many benefits that new hires from smaller companies think are amazing.
For example, we recently introduced an adoption assistance program and paid parental leave program which includes new dads. It’s nowhere near the six weeks of parental leave that Coca-Cola rolled out for 2017 for its 70,000 employees, but at least we offer something. We also have a generous 401(k) match and pretty good medical plan options.
Where we appear lacking is in flexibility. What I mean by that is, it would take higher power intervention for us to give time off for employees to vote. It’s just too costly when you consider 5,000 employees even if you give them just 2 hours. Every hour has to be accounted for. We also don’t provide time off for volunteering or matching funds for charitable contributions. I find this disappointing for a company our size.
As far as compensation goes, small spot bonuses or year-end bonuses are pretty scarce at many large companies. Only senior level managers and key professionals are part of our bonus pool (only about 15-20% of the company).
When my mom worked for a small law-firm here in the DC metro area, the year-end bonus was a huge deal. Everyone from the partners down to the receptionist got something. It may have been $250, but that $250 was a big deal to that person. The year-end bonus may have varied in size, but they got something every year. Now that my mom is retired, she sometimes says “man I wish I still got that year-end bonus.” At which, I laugh and tell her she has her freedom now and it’s worth way more than a $250 check!
We Are Still Behind in Many Ways in the U.S.
The sad truth is that even though some companies are making strides in offering innovative solutions to attract and retain good people, when you compare the U.S. situation to other countries, we are still in the dark ages.
Take Germany for example. In Germany, a new mother takes six weeks of fully paid leave before the birth of a child and eight week afterwards. Those eight weeks are extended to twelve if the baby is premature or there are multiples. On top of that, an employee can take up to a whole year and their job is protected. In the U.S., this protection is only 12 weeks under FMLA rules and many workers don’t have short-term or paid-parental leave when having a baby. German workers can also reduce their schedules to under 30 hours a week and receive 67% of their income. Germany provides a great deal of flexibility for both parents to be involved in early child-care responsibilities.
The flip side of offering greater programs for parents is that employees who are not planning to have children don’t benefit from them. Companies may spend a great deal of effort to promote a niche program which only really benefits about 5% of the employee base.
In addition, all these programs have enormous costs associated with them. Imagine all the workers at your company. If your company suddenly gave a full-year off for all new moms and dads with pay, who will be left to keep the company going? Temporary workers would probably be needed. How would it affect your company’s profitability?
A Big Bummer Is How It Can Effect Your Retirement Saving Plans!
Certainly whether you have access to key saving vehicles like pre-tax retirement accounts or pre-tax spending accounts is going to effect you big time.
Don’t have a 401(k) at your job? Well, then max out your IRA contributions and save like crazy in your after-tax accounts. Just to get you thinking though, here is the difference between maxing out your employer’s 401(k) contribution of $18,000 for ten straight years vs. the little ‘ole $5,500 that applies to the IRA limits (prior to age 50) with steady 4% growth.
You are handicapped by the lower pre-tax contribution space for sure causing you to pay more in taxes during your working years. Of course you can save in other vehicles, but you miss out on the tax efficiency of these options.
If you find yourself working for a company without that 401(k) opportunity, you have to be disciplined to make those IRA contributions. Remember the combination of tIRA and Roth IRA contributions cannot exceed $5,500 a year. I hope they increase the IRA limits!
If you are over age 50, you can take advantage of the catch-up provisions. Here is the same view, but assuming you were eligible for the catch-up contributions for the same ten year period (age 50+). Even the catch-up provisions are more generous for those with access to a 401(k) at $6,000 vs. $1,000.
There are some awesome strategies out there to get around the IRA limits if you work for yourself. However, certainly not everyone is comfortable setting up Individual 401(k)s or SEP or SIMPLE plans or even interested in running their own business to begin with.
We haven’t even talked about employer match yet! If you don’t have a 401(k), you get no employer match! Even some companies that offer a 401(k) can’t afford to provide employer match so that is not a guarantee either. However, you may be eligible for The Saver’s Credit depending on how low your earnings are. .
You Have to Work With What You Have.
Don’t have a Health Savings Account (HSA) at your job? You may have a traditional Flexible Spending Account (FSA) you can use instead for your current health care expenses, but you won’t be able to save the funds for retirement purposes because you have to use those funds in the current year (you may have a small $500 rollover option or grace period depending on your plan’s rules). Pay attention. Maybe your company will offer an HSA down the road giving you more space to save for retirement?
Have a pension? Maybe paying a little extra for health benefits is worth it to be vested in future pension benefits? If this applies to you, pay close attention to the vesting rules (how long you have to work there to lock in your benefits).
How Can you Investigate Potential Employers?
Curious about the benefits at a job you are contemplating applying for? Here are three suggestions:
- Check out the company’s website. Most medium to large companies have a ‘careers’ or ‘jobs’ landing page and most will give you an idea about what kinds of benefits they generally offer. If they are especially proud of a certain program, they are likely to mention it in their recruiting materials.
- Check out glassdoor.com where employees leave comments about work conditions and benefits.
- To specifically check under the hood for a potential company’s retirement plan, check out brightscope.com. This site rates 401(k) plans based on data they scrape from the company’s annual IRS filings. The information can give you a sense as to the overall size of the plan, the fees involved, and how the plan rates against peer companies. It won’t give you details about how much company match is offered but you can get a sense as to whether current employees are contributing – a key indication of the perceived value.
Focus On What You Have, Not What You Are Missing
If you find yourself thinking “I wish my company had X benefit or Y program” remember that you have choices. You can find another job which has X or Y if it’s the absolute most-important thing to you. Or you can make sure you take full advantage of what is available to you and share your awesome ideas with your company for consideration.
It’s pretty unlikely the company my son is working for will suddenly open up a 401(k). Plus he is under age 21 so they probably would exclude him anyway. However, he is planning to take full advantage of the Roth IRA and/or Traditional IRA opportunities to exercise his retirement savings habit. Learn more about setting up a Roth IRA for your teenager or young adult children.
Similar to the small vs. large debate, maybe your internal struggle is with non-profit vs. profit. Or public vs. private. Or established company vs. a start-up?
It’s important to consider everything. Pay, benefits, work-schedule, commute, travel requirements, job stability, opportunities for advancement, rewarding work assignments, training opportunities. Only you can weigh the value of each and decide what is most important to you. No doubt, you may change what is most important to you and your family over time. Be flexible.
What about you? Is there one unique program that your current employer has that you can’t live without? Other than pay, what benefit or program would entice you to stay at a job? What would you be willing to switch employers to have access to?