Mercedes 401(K) benefits are really good!

There have been several comments on the Facebook page about the 401(K) benefits for the hourly workers at Mercedes.  We did some digging and got the actual facts of what the plan entails from the actual benefits materials provided to one of our members. 

The 401(K) benefits at Mercedes are actually really good, especially when compared any industry in this area.  If you contribute 6% of your income ( which is pretax) the employer will contribute 3.75% (for total of 9.75%). On top of that “matching contribution”, Mercedes will contribute up to another 6% whether you participate at all. That comes to a potential total of 9.75% contributed by Mercedes toward your retirement. 

If you contribute  6%, when combined with the Mercedes 9.75% then you will be saving 15.75% towards your retirement!  That is really good, especially when other employers in the area typically only match 3-6%.  

The costs to administer the plan are very low and within the industry standard. The costs of the plan range from .4%-.5%. (less than half a penny per dollar). The Motley Fool reports that the average cost for administering large plans is .88% and 1.19% for smaller plans. Any rumors that the plan at Mercedes is charging too much is simply false. 

“Defined Benefit” plans, where you get a set amount based on your years of service with an employer, are a thing of the past in the private sector. Even many government plans are no longer using Defined Benefit retirement plans and have opted for Defined Contribution Plans where employees have to participate and contribute to the plans. For example, State employees, teachers, police officers and firefighters with the Retirement Systems of Alabama have Defined Benefit Plans which are set in place by the legislature. However, they also have to participate by contributing anywhere from 5.5%-10% based on their position. They may have more of a benefit when they retire, but that is because they are heavily subsidized by the government. The private sector does not have the luxury of borrowing or literally printing money to cover such expenses. In fact, it was heavy pension benefit plans that made the Big 3 automakers uncompetitive in the market and led to their filing bankruptcy. At one point the Big 3 had 10 retirees for every 1 active worker. That is simply not sustainable and is not coming back in the auto industry.

The UAW went on strike last Fall and one of the issues they demanded was for the return of Defined Benefit retirement plans. In the end, even the UAW agreed that was unreasonable and the 401(K) model was left in place. At one point the Big 3 had 10 retired employees for every active one. That model is simply not sustainable. 

As for the contribution amount, recent research from Vanguard showed that less than 5% of employers contribute more than 9% to their employee’s 401(K) plans, with most contributing 3-6%.  Mercedes is already contributing 9.75%, so any argument that the retirement plan at Mercedes is somehow mistreating employees is simply not true.