As America‘s largest private employer, Walmart‘s retirement benefits have a major impact on the financial security of over 1.6 million U.S. workers and their families. While the retail giant used to offer a traditional pension plan, in recent years it has shifted to relying primarily on a 401(k) plan to help employees save for their post-career years. If you‘re a current or potential Walmart associate, here‘s what you need to know about the company‘s retirement plan options.
Understanding Walmart‘s 401(k) Plan
Walmart‘s main retirement benefit offerings is its 401(k) plan, which allows workers to contribute a portion of each paycheck to a tax-advantaged retirement account. The company sweetens the deal by providing matching contributions – effectively giving workers free money to help accelerate their retirement savings.
Key Features of Walmart‘s 401(k) Plan
- Eligible employees can contribute up to 50% of pay each year, subject to IRS contribution limits ($19,500 per year for workers under 50 in 2021; $26,000 for those 50+)
- Walmart provides a 100% match on employee 401(k) contributions, up to 6% of pay
- Wide range of investment options including target date funds that automatically adjust allocations over time
- Employer contributions vest gradually over 3 years (33% after 1 year, 66% after 2 years, 100% after 3 years)
- Ability to make both pre-tax and Roth after-tax contributions
- Potential to earn an associate discount on Walmart stock purchased through the plan
How Walmart‘s 401(k) Match Works
For most workers, Walmart‘s generous 401(k) match is the biggest selling point of the retirement program. Here‘s how it works:
Let‘s say you make $25,000 per year and contribute 6% of your pay ($1,500) to your Walmart 401(k). The company will chip in a dollar-for-dollar match on that amount, depositing an additional $1,500 into your account at no cost to you. That‘s an immediate 100% return on your contribution – not too shabby!
Of course, to get the full match, you need to contribute 6% of your pay. According to Walmart, about 75% of associates who participate in the 401(k) plan do contribute enough to receive the full match. However, that still leaves 1 in 4 participants leaving free money on the table.
401(k) Participation and Account Balances
Despite the potential for a sizable company match, overall participation in Walmart‘s 401(k) remains relatively low. A study by Boston College found that only around 44% of Walmart associates were enrolled in the 401(k) plan.
Average account balances also tend to be on the smaller side, which is not entirely surprising given Walmart‘s large share of lower-wage and part-time workers. Data from BrightScope shows that the average 401(k) balance at Walmart in 2019 was $24,421. That compares to an average 401(k) balance of $81,143 at rival Amazon.
Investment Options and Fees
Walmart‘s 401(k) plan, administered by Merrill Lynch, offers associates a menu of investment options to choose from. Choices include:
- A dozen target date funds that provide an all-in-one diversified portfolio based on expected retirement date
- U.S. large cap, mid cap and small cap stock funds from various fund families
- International stock funds and fixed income options
- A self-directed brokerage account for access to a wider assortment of mutual funds and ETFs
Overall, Walmart‘s 401(k) plan fees are quite competitive. Total fees averaged 0.32% of assets annually in recent years, lower than the 0.45% average for mega-sized 401(k) plans. However, some associates have complained about the lack of a true low-cost index fund option in the lineup.
Lawsuits and Complaints
Like many large employers, Walmart has faced litigation over its 401(k) plan. In 2020, the company settled a class action lawsuit alleging mismanagement of plan assets for $13.5 million.
The suit claimed Walmart breached its fiduciary duties by allowing unreasonably high fees, failing to adequately monitor investments, and improperly concentrating plan assets in high-cost funds. As part of the settlement, Walmart agreed to make changes to its 401(k) plan offerings.
Walmart‘s Discontinued Pension Plan
In addition to its 401(k), Walmart used to offer a traditional defined benefit pension plan to employees. The plan was discontinued for new hires in the late 1990s and then frozen for all workers in 2011.
Under the pension plan, workers accrued a fixed monthly benefit based on factors like tenure and salary history. The plan had a 5-year vesting schedule, meaning workers were entitled to full benefits after 5 years of service.
When Walmart froze the pension plan in 2011, the average participant had accrued a benefit of around $3,586 per year. That‘s a relatively modest payout, but it could still provide a meaningful income boost in retirement on top of 401(k) savings and Social Security.
Why Walmart Moved Away from Pensions
The shift away from traditional pensions has been a broad trend in corporate America in recent decades, and Walmart was no exception. There are a few key reasons companies have ditched pensions in favor of 401(k) plans:
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Cost certainty – Pension plans are a long-term liability for employers and costs can be unpredictable based on factors like market returns and longevity. 401(k) provide more predictable annual costs.
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Risk management – With pensions, the employer bears all of the investment risk and longevity risk. If the plan becomes underfunded, the company is on the hook to shore it up. 401(k) plans shift this risk to workers.
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Portability – Pensions typically have long vesting periods and aren‘t easily transferred between employers. 401(k) balances are fully portable for workers who change jobs.
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Perceived worker preferences – Many companies believe workers prefer the control and flexibility of 401(k) plans over the fixed income stream provided by pensions.
Retirement Benefits in the Retail Sector
While Walmart is America‘s largest private employer, it‘s worth looking at how its retirement benefits stack up against other major retailers. Here‘s a quick comparison:
- Amazon – Offers a 401(k) plan with 50% match on the first 4% of employee contributions. Some employees also receive restricted stock units.
- Costco – Standout 401(k) plan with 50% match up to $500 per year, plus additional automatic company contribution of 3-9% of pay based on tenure. Costco still offers a pension plan as well.
- Target – 401(k) with 100% match up to 5% of pay, plus an automatic company contribution equal to 5% of pay for workers clocking at least 25 hours per week.
- Kroger – 401(k) plan with 100% match up to 3% of pay, plus additional automatic contributions of 1-2% depending on tenure.
As you can see, Walmart‘s 6% 401(k) match is competitive with other large retailers, but some rivals do offer additional automatic contributions or even pension benefits on top of their 401(k).
Retirement Readiness in the Retail Sector
Saving adequately for retirement can be a challenge for retail workers. According to research by the Center for Retirement Research, the median 401(k)/IRA balance for workers in the retail trade sector was just $26,700 in 2019. That‘s less than half the $69,000 median balance across all industries.
Lower wages are likely a key factor behind these slim retirement balances. The median wage for retail salespersons was just $25,250 per year in 2020 according to the Bureau of Labor Statistics. With limited disposable income, it can be difficult to prioritize retirement contributions.
High turnover in the retail sector may also make it harder for workers to build sizable 401(k) balances, since employer contributions typically vest over several years of service. Plus, job-changers who cash out 401(k) balances rather than rolling them over can end up depleting their savings.
The Importance of Retirement Benefits for Attracting Retail Talent
Offering a compelling 401(k) plan with generous employer contributions can be a valuable recruiting and retention tool for retailers. A 2019 survey by Betterment found that 74% of workers said a good 401(k) was "very important" or "extremely important" in evaluating a job offer. And 1 in 4 said they‘d left a previous job due to poor retirement benefits.
With the current tight labor market and economic stresses facing the retail sector, employers can‘t afford to overlook the importance of financial wellness benefits like 401(k) plans. By helping workers build long-term financial security, retailers can foster a more stable and productive workforce.
Saving for Retirement as a Walmart Employee
While Walmart‘s 401(k) match provides a solid foundation, workers shouldn‘t rely on employer contributions alone to fund a comfortable retirement. Most experts recommend saving 10% to 15% of your income throughout your career to maintain your lifestyle in retirement.
Based on that guidance, here‘s how much you‘d need to save in your Walmart 401(k) at various salary levels to build an adequate nest egg:
| Annual Salary | 10% Annual Contribution | 15% Annual Contribution |
|---|---|---|
| $25,000 | $2,500 | $3,750 |
| $35,000 | $3,500 | $5,250 |
| $50,000 | $5,000 | $7,500 |
| $75,000 | $7,500 | $11,250 |
Of course, these are just general guidelines. The amount you personally need to save will depend on factors like your age, expected retirement lifestyle, anticipated health care expenses, and other income sources like Social Security.
To make sure you‘re on track, consider:
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Contribute enough to get the full company match. At minimum, you should aim to contribute 6% of your pay to take advantage of the full Walmart match.
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Increase your savings rate over time. If you can‘t afford to save 10-15% of your pay right off the bat, commit to bumping up your contribution rate by 1% each year until you reach your target.
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Consider opening an IRA. If you max out your Walmart 401(k), you can save even more in an individual retirement account – up to $6,000 per year ($7,000 if age 50+).
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Invest appropriately for your age. Make sure you‘re investing your 401(k) in an appropriate mix of stocks and bonds based on your age and risk tolerance. Target date funds can be an easy "set it and forget it" solution.
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Don‘t cash out your 401(k) if you leave Walmart. If you change jobs, be sure to roll your Walmart 401(k) balance into an IRA or a new employer‘s plan. Cashing it out will trigger taxes and potentially early withdrawal penalties.
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Explore additional employee benefits. Be sure to take advantage of Walmart‘s other financial benefits like life insurance, health savings accounts, employee discounts, and more. Every little bit helps when it comes to financial security.
Policy Changes That Could Impact 401(k) Plans
It‘s worth noting that changes to federal and state retirement policies could impact 401(k) plans like Walmart‘s in the future. A few proposals that have been floated in recent years:
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Auto-IRA programs – Several states are implementing programs that automatically enroll workers without employer retirement plans into state-sponsored IRAs. While this wouldn‘t directly impact Walmart employees, it could create new coverage for other retail workers.
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Federal auto-IRA proposal – The Biden administration has proposed a national auto-IRA program as part of its American Families Plan. Under the proposal, employers with more than 5 workers would be required to automatically enroll employees in either the company 401(k) or a new "federally-facilitated" retirement plan.
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Saver‘s Credit expansion – There have been various proposals to expand the Saver‘s Credit, a tax credit for low- and moderate-income workers who save in 401(k)s and IRAs. One proposal would make the credit refundable (meaning you could claim it even if you don‘t owe income tax) and deposit it directly into retirement accounts.
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Student loan/401(k) assistance – Some lawmakers have proposed allowing employers to make 401(k) contributions for employees who are paying off student loans rather than saving for retirement. This could be especially impactful for younger retail workers saddled with education debt.
The Bottom Line
Walmart‘s decision to move away from pension benefits in favor of an enhanced 401(k) plan reflects a broader trend in the private sector. While the company‘s 6% match is competitive, overall plan participation and savings rates among associates remain relatively low.
With diligent saving and smart planning, Walmart employees can leverage the company‘s 401(k) plan to build a solid foundation for retirement. Aiming to contribute at least enough to capture the full match is a wise move, as is considering additional saving in IRAs when possible.
At the same time, Walmart could potentially do more to help its 1.6 million associates prepare for retirement. Strategies to boost plan participation, increase default contribution rates, expand automatic enrollment, and reduce leakage when workers change jobs could all help get more employees on track.
As America‘s largest private employer, Walmart has both an opportunity and a responsibility to be a leader in promoting retirement security for front-line retail workers. By prioritizing financial wellness and innovating to meet the needs of its diverse workforce, the company can make a real difference in employees‘ post-career prospects.
