WeWork gave investors a detailed look at its business this week ahead of its planned initial public offering, and it became a bit more generous to its employees, too.
The We Company WE, +0.00%, the formal name for the company that rents shared office spaces, announced it will start offering its workers an employer match of contributions to their 401(k) plans. The way WeWork is approaching this match, however, is a bit unique.
The company said that while it didn’t contribute to employee retirement accounts in 2018, it will match 100% of employee contributions to a 401(k) plan up to $1,800 per year beginning this year, according to the Form S-1 it filed with the Securities and Exchange Commission. Companies typically administer employer matches as a percentage — such as the first 3% or 6% of employees’ contributions, which are also a percentage of their salaries. WeWork chose to use a “dollar cap” instead, which is uncommon, said Brooks Herman, head of data and research at BrightScope, a financial data and research firm.
The average company match was a record high of $1,780 in the first quarter of 2019 — up 6% from the year before, according to a Fidelity Investments report, which looks only at the accounts it manages. But these figures are based on quarters. The average employer contribution for 12 months ending March 31 of this year was just over $4,000, according to another Fidelity report.
Providing an employer match as a percentage could make the benefit more lucrative. How generous a match is depends on a few factors, including workers’ salaries and if the employer match is a full match or a partial one. Many companies differ in their matching formulas — some offer 50 cents on the dollar for the entire employer match, or 100% of the first percent and then half of the next 3% in employee contributions.
The most commonly used formula is 50 cents on the first 6% of pay, according to Vanguard research of its clients’ retirement plans. The second most common formula was the full match of the first 3% and then half of the next 2%. That was the most common formula at Fidelity, too.
Under WeWork’s offering, a worker would have to contribute $1,800 or more to get the full match. If he contributed less, such as $1,000, he’d get no more than $1,000. If he contributed up to the maximum limit allowed by the IRS, which is $19,000 in 2019, he’d still only get $1,800. With percentage-based employer matches, it depends on the person’s salary. For example, an employee earning $100,000 and contributing 10% of her salary to a 401(k) would mean deferring $10,000 into that account. If the employer matched 100% of a 6% match, that would be an additional $6,000. Employer matches do not count toward the $19,000 limit.
The We Company declined to provide comment on why it chose a dollar cap, or when the employer match officially began.
Financial advisers typically urge savers to put away enough to qualify for a company match whenever possible, as it is essentially free money that grows over time. WeWork’s employer match is fully vested, which means an employee can take that money as soon as they receive it, regardless of how long he stays at the company. Comparatively, some companies require an employee to remain at the company for a certain number of years before an employer match is entirely theirs, or provides a fraction of the benefit upon her exit. (Employee contributions are always fully vested.)
The approach to its contributions may be uncommon, but employees of WeWork are fortunate to have access to a workplace retirement savings account. Not all workers are offered 401(k) plans. Only 14% of all companies had 401(k) plans for their employees in 2012, according to a 2017 report from two U.S. Census Bureau researchers, and those companies were typically larger in size. States have stepped in to help their residents, by creating state-sponsored retirement plans for small businesses to use if they have no accounts in place.