Call Me Crazy, But I Purposely Went To Work For A Company Without A Retirement Plan

When we moved to Washington last year, I was able to keep working for the same company I was working for in Arizona because they were kind enough to allow me to work from home full time. In Arizona, I was already working from home two days a week, so when I asked to work from home full time in another state, I had a track record my boss could look back on. It also helped that my company had offices across the nation and videoconferencing was a part of their culture.

Working from home may seem like dream to some people, but it’s not always easy. When we first moved and had not yet found a house, I was working from the living room of a tiny two-bedroom apartment. My computer was set up on a non-so-stable Ikea table and I sat in an uncomfortable Ikea plastic chair. Having the desk in the living room meant any after-hours work I had to do (and I work in IT, so there is a fair amount of it) interfered with my wife and daughter’s use of the TV. The kitchen was three steps to the right of my “office” and the washer and dryer just two steps. I’m sure the people I had meetings with heard some strange noises once in a while.

When we moved into our house, things got better. I was able to have my own room for a home office and I bought a real desk and chair. I actually felt like I had a real place to work. (But, as my father likes to say, the problem with working from home is that when you come back from being out, you never know if you are going home or going to work.)

Am I Really Considering Giving Up Working From Home?

Despite being able to work from home full time, I eventually ended up looking for a new job. There were a couple of reasons. First, I was living in Washington, a fairly expensive state, but was still earning an Arizona income. Arizona is fairly inexpensive, so salaries are lower there when compared to Washington. Second, the Seattle area is a high-tech mecca. I am a database administrator and the demand for people with that skill-set is much higher here. When you add the increased demand to the higher cost of living, you end up with salaries that are significantly higher. So while I was hesitant to give up a full time work at home position, I felt I had to at least look for a higher paying position locally. To not do so would be like losing money each paycheck.

I saw an ad on LinkedIn and contacted the recruiter who posted the position. Long story short, I had an interview, then a second interview, and then I got an offer! I got the first job I applied for. Nice!

But there was a catch. The company that wanted to hire me did not offer a 401(k) plan. WTF? When I asked about this, the stated reason was that the company employs a lot of low income employees (in this case, warehouse workers). In IRS parlance, these are Non-Highly Compensated Employees (NHCEs). Those that worked in the main office in management or tech positions earned more (i.e., they are “Highly Compensated Employees,” or HCEs). The IRS has rules for 401(k) plans so that they cannot favor HCE over NHCEs. To avoid running afoul of those rules, the company decided to not offer 401(k) plans at all.

This was a bit of a concern for me. If I took the position, not only would I be giving up being able to save for retirement in a tax-advantaged manner, I would also be giving up the free money I was getting from my employer 401(k) match.

I Need Some Professional Advice

Honestly, given how competitive the tech industry is here, I’m surprised the company was able to attract good talent without a 401(k) plan. Before accepting the position, I called my CPA and asked her opinion. You see, not only would I be giving up a 401(k), my wife and I also had high enough incomes that we were no longer eligible to contribute to an IRA. So I felt like I was losing out on some valuable retirement savings options.

In the end, my CPA said don’t worry about the lack of a 401(k) and take the job. As long as I still saved an amount equal (or more) than I was contributing to my old 401(k), I would be OK. Plus, any money I saved would have no rules on how or when it could be used, unlike 401(k) or IRA funds.

I wanted to take the new job. Although it did have a 35 to 45 minute commute (each way), I would still be able to work from home two days a week. Furthermore, it was obvious the company wanted me. The recruiter submitted me at $30,000 over my old salary and the company offered $35,000 over plus a $10,000 yearly bonus plus four weeks of vacation a year, which was two more than most starting employees get. Wow.. I've never heard of a company offering more than what someone was initially asking. Well, I have heard of it happening, but in more of an urban legend kind of way. It had never happened to me.

The company did not mention that they did not have a 401(k), naturally. Luckily, I found that information out while Googling the company. I was almost maxing out my 401(k) at my old company and that meant I was getting an additional $5,000 per year from their match. So I countered the job offer asking for $40,000 over my old salary but was willing to take a $5,000 bonus instead and explained the reasoning was because I was losing the 401(k) match money. This was actually a double win for me - not only was I asking for more money, I was swapping $5,000 of bonus money I may or may not have been paid for $5,000 of salary I was guaranteed to get paid. They agreed and I accepted the position.

A 401(k) Could Still Happen

But that’s not the end of the story. Now that I am employed, I will be pushing the company to institute a 401(k). There is a special type of 401(k) plan for companies like mine – it’s called a Safe Harbor 401(k). It is specifically designed to avoid favoring HCEs over NHCEs and thus avoid IRS penalties. I’m not sure if management knows about this but given the highly competitive nature of the Seattle area tech job market, I think I can make a good case for the implementing such a plan.

I actually worked at a company in the past that had a Safe Harbor 401(k), although at the time, I didn’t know it was anything special. These types of plans have one feature that is very beneficial to employees: you are immediately 100% vested in all employer contributions!

While it seemed a little crazy to start working for a company that does not offer any type of retirement plan, it’s not as crazy as it sounds - provided you negotiate for something else to make up for the loss. Would you ever work for a company that did not offer a retirement plan?