Benefits Can Add Up When You Start Early

Prior to the 1990s, landing a job with a reputable manufacturing company meant you could plan on a guaranteed monthly pension when you retired. When combined with social security, a retiree could expect enough income to enjoy a comfortable retirement.

Today, traditional pensions have disappeared for most workers, with the notable exception of teachers, nurses, and some government employees. Most manufacturing employers now offer only a 401K plan. Some will match employee contributions, typically one to six percent, but many others don’t.

Sirois Tool is an exception. It’s one of the rare companies that offers a matching 401K plan and a profit sharing pension plan. This is a self-directed plan where the employee can choose among a range of investments to suit their tolerance for risk. The company also provides an investment advisor to help the employees make these choices.

The company matches five percent of employee contributions to the 401K plan, plus a discretionary company contribution of up to 10% of an employee’s earnings, based on the company’s annual profits.

For an employee earning $70,000 per year, the discretionary contribution at 10% translates to a $7,000 401K contribution. If that same employee puts five percent of his annual salary ($3,500) into his 401K, Sirois Tool adds an additional $3,500. That’s a whopping $10,500 of company 401K contributions in a single year!

Assuming the company’s annual profits may not always be sufficient to offer a 10% discretionary contribution every year, we’ll estimate a more conservative discretionary annual contribution of 5%. That’s still an additional $3,500 401k contribution. When added to the guaranteed 5% company match, the employer contribution to this employee’s 401K is now $7,000 per year. Sirois Tool has only had one year (2009) that they didn’t do at least a 5% discretionary contribution.

The cumulative effect of a $7,000 contribution over 20 years, at a very conservative estimated interest rate of 3%, totals $200,735. That’s literally free money, and it assumes the employee hasn’t gotten a raise in 20 years, which is extremely unlikely.

When deciding between job offers from competing companies, it’s important to thoroughly examine the benefit plans from each company. That $200,735 Sirois Tool contribution equates to $10,036.75 per year, $193 per week, or $4.83 an hour. Plus, the company also provides a year-end bonus (based on annual profits), which is something else to consider.

Sirois Tool recently held its annual review of its profit sharing/401k plan and found that 88% percent of employees are participating (we wish it was 100%). In addition, the internal total cost of the company plan is a very low 0.87% of plan assets. Considering that most other plans charge more than one percent of plan assets, new employees should consider rolling 401K assets from previous employers into the Sirois Tool plan.

Sirois Tool knows that good workers have many employment options. Our benefits package is structured to provide them with the financial compensation they deserve.