The benefits packet at a new job lands with twenty PDFs and a 90-day enrollment window. Most people open the health plan PDF, eyeball the dental coverage, and skip the 60-page 401(k) summary plan description on the assumption that all 401(k) plans are basically the same.
They are not basically the same. The spread between a good 401(k) plan and a mediocre one is, over a 30-year career, somewhere between $150,000 and $400,000 in retirement account value on the same contribution rate. That is worth 15 minutes of reading.
Here is the 15-minute version, the four things to check, and what to do once you have answers.
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What You Are Looking For
A 401(k) plan is mostly a wrapper around an investment menu, with three or four parameters around it. The good news is the parameters that matter are short and easy to find in the plan documents. The summary plan description is the canonical source, and federal law requires it to be in plain language. The Department of Labor's plan participant guide walks through what the SPD is supposed to contain.
The four things to check, in order:
- The employer match formula.
- The vesting schedule.
- The investment menu and the expense ratios on the index funds.
- The administrative fees baked into the plan.
If those four numbers look reasonable, the rest of the plan probably is too. If they do not, the plan is going to cost you over time, and the right move might be to contribute only up to the match and put additional retirement savings into an IRA outside the plan.
Check 1: The Match Formula
The match formula will be one of three shapes:
- Dollar-for-dollar up to X percent. The employer matches 100 percent of your contributions up to X percent of your salary. This is the strongest match.
- 50 cents on the dollar up to X percent. The employer matches 50 percent of your contributions up to X percent of your salary.
- Tiered formula. The first chunk of your contribution gets matched at one rate, additional contributions at a lower rate. Often written as "100 percent of the first 3 percent, 50 percent of the next 2 percent," which is one of the most common formulas in the U.S. workforce.
The headline number to compute: at the contribution rate where the match maxes out, what percentage of your gross salary does the employer add. A 100 percent match up to 6 percent is worth 6 percent of salary. A 50 percent match up to 6 percent is worth 3 percent of salary. The difference, over 30 years, is large.
The rule of thumb: contribute at least enough to capture the full match. Anything below that is leaving compensation on the table. The Bureau of Labor Statistics publishes annual data on what typical employer matches actually look like across industries, useful as a reality check.
Check 2: The Vesting Schedule
Your own contributions are always 100 percent vested immediately. The employer's match is a different story. The vesting schedule determines how much of past employer matches you get to keep if you leave before a certain anniversary.
There are two flavors:
- Cliff vesting. Zero percent until year N, then 100 percent. N is capped by federal law at 3 years for cliff schedules.
- Graded vesting. A rising percentage each year, capped by federal law at 6 years to reach 100 percent.
The number to know: how many years until you hit 100 percent vested. If the answer is more than two and you are someone who switches jobs every two years, the headline match number is misleading. A 100 percent match that takes 4 years to fully vest is worth a lot less to a 22-month-tenure employee than the same match with immediate vesting.
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Check 3: The Investment Menu
Pull up the plan's investment menu. Look for two things:
Is there at least one broad-market index fund. A total US stock market index, an S&P 500 index, or a total world index. If the answer is yes, you have a low-cost, diversified core option, which is most of what you need.
What is the expense ratio on that index fund. This is buried in the fund's fact sheet but it is always there. Acceptable: under 0.10 percent (10 basis points). Mediocre: 0.10 to 0.30 percent. Bad: above 0.30 percent for an index fund.
For comparison, the same index funds in a retail brokerage IRA usually run 0.03 to 0.04 percent at places like Vanguard or Fidelity. A 0.50 percent expense ratio drag in a 401(k), compounded over decades, costs roughly 15 percent of the final balance compared to a 0.04 percent expense ratio outside the plan. This is the math the Securities and Exchange Commission keeps hammering on in its investor education materials, and it is worth taking seriously.
If the plan has a good low-cost index option, the menu is fine. If it does not, contribute up to the match and put additional savings into an IRA at a brokerage where the expense ratios are lower.
Check 4: The Administrative Fees
Some plans, especially at smaller companies, layer an administrative fee on top of the investment expense ratios. This shows up as a percentage of your balance deducted annually (a "wrap fee"), or as a flat dollar amount. The fee disclosure is required to be in the plan documents under federal regulations the Department of Labor publishes.
The number to look for: total annual plan fees as a percentage of your balance. Add the index fund expense ratio plus any wrap fee. Reasonable: under 0.5 percent total. Acceptable: 0.5 to 1 percent. Problematic: above 1 percent total.
A 1 percent annual fee drag, compounded, eats roughly a quarter of the final balance over a long career. Plans that high are usually small-employer plans where the administrative cost gets pushed onto participants. They are not common at large companies, but they exist.
The 15-Minute Process
Open the summary plan description. Search the PDF for these strings:
- "match" or "matching contribution" → the formula.
- "vesting" → the schedule.
- "investment options" or "designated investment alternatives" → the menu.
- "administrative" or "recordkeeping" → the fees.
Twelve minutes of reading, three minutes of arithmetic. The decision then falls into one of three buckets:
Plan is good. Index funds under 0.1 percent, total fees under 0.5 percent, reasonable match. Maximize the match, and seriously consider contributing more than the match if you have the cash flow.
Plan is okay but expensive. Match is good, fund menu is okay, fees are 0.5 to 1 percent. Contribute up to the match. Additional savings go into an IRA outside the plan.
Plan is bad. Fees above 1 percent, no decent index option, weak match. Contribute up to the match anyway (the match is still a 50 to 100 percent return on the contribution), then route everything else outside the plan.
Run the Projection
Once you have the match formula and the fund expense ratios in hand, run the projection. The free retirement calculator at EvvyTools handles this directly: enter your starting balance (zero, or the balance you are rolling in from the old plan), the contribution rate, the match formula, and a realistic net-of-fees return assumption. The result is a year-by-year projection that makes the impact of the plan choice concrete.
For the broader question of what to do with the 401(k) at the old employer when you start at the new one, https://evvytools.com/blog/what-happens-to-401k-when-you-change-jobs/ walks through the four real options. For the rest of the personal finance calculators that pair with the rollover decision, https://evvytools.com has the full set.
Fifteen minutes of reading a benefits packet is one of the highest-leverage uses of time at any new job. The plan is going to compound for decades. Knowing what is actually inside it changes the contribution rate you set on day one.
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