Though it looks like a compelling investment in many ways, critics often find fault with Wal-Mart
Prior to the change, the company admirably offered profit-sharing, in which it would deposit 4% of a worker's pay into a retirement plan -- without the worker needing to contribute anything. Most plans at American companies, even the most generous ones, require employees to contribute to 401(k)s before company contributions happen.
The new rule
But 4% of what for many workers is a modest salary won't build a rich retirement, which makes the retailer's new change particularly promising. Now, Wal-Mart will fully match employee contributions up to 6% of their pay. Many companies just match 50% of any employee contributions.
Whereas before, workers would get 4% from the company, they can now get 6% -- though they'll have to contribute 6% on her own, too. Put those two together, and they'll get the equivalent of 12% of their income deposited in their retirement plans. That's great, since most of us are way behind on our saving and investing for retirement, and the usual save-10%-of-your-income rule of thumb won't be enough for most people.
I see only one problem: At least in lower-paying jobs, it can be very hard to contribute 6%. A cynic could wonder whether Wal-Mart wants save money by ensuring that workers will contribute less to their plans.
According to retirement-plan rating company Brightscope, Wal-Mart's worker participation rate in their 401(k) doesn't compare very favorably to other retailers. On average, Costco
If workers like Wal-Mart's new plan, it could help the company retain employees, saving the time and expense of frequent retraining. A large number of more contented employees could also boost Wal-Mart's reputation. If the new plan ends up saving Wal-Mart money and giving its workers a better retirement, this could ultimately be a savvy move that makes investors happy.
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Longtime Fool contributor Selena Maranjian owns shares of Costco and Wal-Mart. Costco and Wal-Mart are Motley Fool Inside Value recommendations. Costco is a Motley Fool Stock Advisor selection. Wal-Mart is a Motley Fool Global Gains pick. The Fool owns shares of Costco, and Wal-Mart. Try any of our investing newsletter services free for 30 days. The Motley Fool is Fools writing for Fools.
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