The Disadvantages of a Lump Sum 401(k)
A small percentage of companies distribute 401(k) matches to their employees in one lump sum each year, rather than contributing to each paycheck throughout the year. This system can be detrimental to employees’ 401(k) balances if they miss some years’ matches when they change or lose jobs.
A worker with a starting salary of $40,000 contributes 10 percent of it to a retirement account. The employer matches 50 percent of the employee contribution, up to 6 percent of salary. After inflation, investments in the account earn 4 percent each year, and the annual salary increase is 1 percent. The worker changes jobs seven times in 40 years.