Employee plan forbids contribution in first three months?

[StepRightUp]

Hey guys,

My friend got a new job at a non-profit and she is not allowed to contribute to the 403b for the first three months of employment.

Anyone ever hear of this policy? If so, do you know the thinking behind it? The only idea I had was that 3 months is typically a probationary period. But I've never heard of this.

Thanks!

[JustBill]

Not at all uncommon for an employer to restrict new employee participation in a 403(b) or 401(k) plan. Although probably not as common as it was 10 years or so ago however.

[disneysteve]

It is very common for employers to have "probation" periods for new employees during which time they are not eligible for health insurance, retirement benefits, etc. 90 days is the time period I hear most often. I've also heard of not being eligible for company matching in a 401k until you've worked there for a year. You can contribute but no matching funds.

[MonkeyMama]

"1 year wait" is very common for smaller businesses. It is a lot of expense to administer a 403 or 401k plan and you only want to set up employees who will be sticking around a while. Heck, when I worked for a mega corp, the waiting period to contribute was one year. (It was an extremely high turnover type job, so was probably why).

[StepRightUp]

Thanks, everyone. I'll pass this on. It makes me much more appreciative of my current employer who doesn't have such a waiting period.

[Nika]

I had a similar restriction when I first started, except after the 3 month period, I could choose to contribute retroactively and by doing that, get the start of my retirement participation dated back to my first day. I did that. Most people though probably either won't bother or don't have the cash.

[snarkfinance]

The fist company I worked at had a 1-year probationary period, and a 5-year period to "vesting" of matches. Needless to say, this is a Fortune 50 company who's name rhymes with "Octor and Amble".

[kork13]

I had a similar restriction when I first started, except after the 3 month period, I could choose to contribute retroactively and by doing that, get the start of my retirement participation dated back to my first day. I did that. Most people though probably either won't bother or don't have the cash.

This is something worth highlighting... The contribution restriction really shouldn't matter in most cases (assuming you don't start at a new job within the last 3 months of the calendar year). There is no restriction on how much you can contribute per month... only per year. So your friend could save the money (in checking or wherever) that she would have wanted to contribute during the first three months. Once able to make contributions, she can have the full amount she originally wanted to contribute taken out of her first couple paychecks.

Perhaps stated more clearly, she could save her contributions from months 1-3, then make double contributions during months 4-6. It would mean having low net paychecks during months 4-6, but that would be offset by the money already set aside during those first 3 months.

Doing it that way would allow her to save everything she wanted to in the first place. The only difference would be the 3 months of potential growth that she might have missed out on (which in the long run, is fairly insignificant).

[elessar78]

I'm in the same boat as your friend, but I only have to wait two quarters worth. I'm just saving the amount into cash and/or my Roth. Does your friend only have one account? Previous employers?

[thesimplemoneyblog]

As the rest said, 90 days is very common. One year is common too (just less so). Costs to administer a 401k, 403b or other qualified employer plan can be quite high, so they want to make sure it is restricted to only people who plan to stick around. I think it's an ERISA requirement that the waiting period can't be longer than one year though.