If you’re an IBEW 1245 member working at PG&E, and you’re contributing 20% of your pre-tax pay to your 401k without either choosing the spillover option or an after-tax contribution, you may be missing out on matching funds from the company – and those funds can really add up over the years.
At PG&E, the 401k employer match program is $0.60 of up to 6% of eligible compensation for those hired before 2013, and $0.75 of up to 8% for those hired in 2013 or later, and the IRS Pre-Tax Limit is set at $20,500 for the year 2022. However, there are different ways to schedule your 401k contributions to ensure that you’re maximizing your match from PG&E. Making the most of your 401k also means understanding the spill-over and after-tax options.
The following examples demonstrate various contribution options for an employee who makes $60/hour in pension eligible pay. Note the differences for employees hired before 2013 and those hired after 2013 with the higher company match.
Examples 1 – 5 show how the contributions and match work for employees hired before 2013 in the Final Pay (traditional) pension formula.
Example 1: Employee with 20 years of service (hired before 2013) contributes 20% of their pre-tax pay to the 401k Plan and does not elect the spillover to after-tax option. In this situation, the employee reaches the IRS limit in October, and cannot make any additional 401k contributions. They also stop receiving the PG&E match when their contributions stop. While this might seem like the simplest option, employees in this income bracket who put too much money away too early in the year with no spillover are losing out on hundreds each year in employer match.
Example 2: Employee with 20 years of service (hired before 2013) contributes 20% of their pre-tax pay to the 401k Plan but chooses the After-Tax Spill Over Election. By electing the After-Tax Spillover, the employee receives an additional $691.20 in PG&E match and contributes $4,460 in after tax contributions. These after-tax contributions can remain in the plan or they may be rolled over to a Roth IRA. Currently the Roth IRA is not offered to our members at PG&E, but after-tax contributions could be moved to an IRA outside of the PG&E plan.
Example 3: Employee with 20 years of service (hired before 2013) spreads out slightly smaller pre-tax contributions over the year and does not make any after-tax contributions. In this instance, the employee contributes $532 less than the IRS maximum pre-tax contributions for the year, but the employee receives an additional $691.20 (18%) in PG&E match.
Example 4: Employee with 20 years of service (hired before 2013) spreads pre-tax contributions out over the year and adjusts mid-year to achieve IRS maximum pre-tax contribution (January through mid-June 17% contribution, 16% for the remainder of the year), and does not make any after-tax contributions. Here, the employee contributes the IRS maximum pre-tax contributions for the year and receives an additional $691.20 (18%) in PG&E match.
Example 5: Employee with 20 years of service at the plan maximum of 20%, with pre-tax set to hit the pre-tax annual limit by the end of the year, and elects spillover. Employee contributes the IRS maximum pre-tax contributions for the year, contributes $4,460 in after tax contributions, and receives an additional $691.00 (18%) in PG&E match.
Examples 6 – 10 show how the contributions and PG&E match work for employees hired after 2013 under the newer increased 401k matching in the Cash Balance pension plan.
Example 6: Employee with five years of service (hired after 2013) contributes 20% of their pre-tax pay to the 401k Plan and does not elect the spillover to after-tax option. The employee reaches the IRS limit in October and stops making 401k contributions. They also stop receiving PG&E match when their contributions stop, similar to Example 1 above. Again, this might seem like the simplest option, but employees in this income bracket who put too much money away too early in the year with no spillover are losing out on more than $1,000 each year in employer match.
Example 7: Employee with two years of service (hired after 2013) contributes 20% of their pre-tax pay to the 401k Plan, and chooses After-Tax Spill Over Election. By electing the After-Tax Spillover, the employee receives an additional $1,185 in PG&E match and contributes $4,460 in after tax contributions.
Example 8: Employee with two years of service (hired after 2013) spreads pre-tax contributions out over the year and does not make any after tax contributions. Employee contributes $532 less than the IRS maximum pre-tax contributions for the year, but receives an additional $1,185 (19%) in PG&E match.
Example 9: Employee with eight years of service (hired after 2013) spreads pre-tax contributions out over the year and adjusts mid-year to achieve IRS maximum pre-tax contribution January through mid-June 17% contribution, 16% for the remainder of the year, and elects the spillover option. Employee contributes the IRS maximum pre-tax contributions for the year, and receives an additional $1,185 (19%) in PG&E match. Employee makes a small $44 after-tax contribution.
Example 10: Employee with eight years of service (hired after 2013) contributes at the plan maximum of 20%, with pre-tax set to hit the pre-tax annual limit by the end of the year, and elects the spillover option. Employee contributes the IRS maximum pre-tax contributions for the year, contributes $4,460 in after tax contributions, and receives an additional $1,185 (19%) in PG&E match.
View the detailed breakdown for all of the above examples here.
Of course, results vary for each employee based on years of service, date of hire and eligible pay, but we’ve learned that a number of IBEW 1245 members aren’t receiving their full employer match each year. In Example 1, the employee lost out on roughly $14,000 in employer matching contributions over their 20-year career — and this doesn’t include any potential gains those matching contributions could have earned over those 20 years. IBEW 1245 wants to make sure that our members are making informed choices to avoid such a scenario for themselves.
With this in mind, we encourage all IBEW 1245 members at PG&E to take a closer look at your retirement options to ensure that you’re not leaving money on the table. If you have any questions, there are resources available to you. Additional information about your PG&E 401k plan can be found here or by calling Fidelity at 1-877-743-4015 or going the Fidelity Net Benefits website. You may also want to discuss your 401k plan options with your tax and/or financial advisor.