Key takeaways

• Review your investment options and choose what fits your goals
• Many employers offer matching contributions; employees may need to contribute a certain amount to receive the full match
• Know your plan’s automatic features like default investments and auto-escalation
• Check when you become eligible to participate
• Adjust your contributions and investments as needed

A 401(k) retirement plan is a key part of an employee benefits package — but the type of plan each employer offers is slightly different. From an employer match to automatic increases to eligibility requirements, there are plenty of key questions to ask yourself.

A 401(k) plan is a key part of your benefits package — but the type of 401(k) plan each employer offers is slightly different. Here are some key questions you may want to ask when you’re evaluating your 401(k) plan.

What are the 401(k) plan’s investment options?

Your employer typically chooses the array of investment options that are available within your 401(k) plan. These options may include the following types of investments, which are overseen by professional money managers:

• Target date funds (TDFs): With a TDF, you’ll select a single fund that aligns with your expected retirement date. When retirement is far off, TDFs typically invest heavily in stocks to take advantage of their long-term growth potential. Over time, they gradually add more bonds to help reduce potential risk as your retirement date approaches.
• Target risk funds: With a target risk fund, you also pick a single fund — but the mix of underlying investments in the fund doesn’t change over time. Instead, the fund sticks to a strategy that matches the level of risk you’ve chosen. As investors approach retirement, they tend to switch from an aggressive target risk fund, which typically invests most or all of its assets in stocks, to a conservative target risk fund, which invests mostly in bonds.
• Individual mutual funds: Many employers provide a short menu of mutual funds you can pick from. While each fund is typically professionally managed, you choose how much to invest in each one based on your own knowledge and preferences.
• Managed accounts: With a managed account, you provide information about your financial circumstances and goals. Your retirement account is then professionally managed to align with your situation.

Some plans offer hybrids of the options above. For instance, at a certain age, one hybrid option could automatically transition your TDF assets to a managed account.

How much is the employer match?

Many employers include matching contributions as part of their benefits offering: If you contribute to your 401(k), they also contribute funds.

If your plan offers matching, many employers match a portion of your contributions up to a certain percentage of your salary. These are often referred to as matching contributions because you don’t have to do anything to earn them other than set money aside for your retirement. Many participants choose to contribute at a level that allows them to receive the full employer match.

Read more: What percentage should I contribute to my 401(k)?

What are the plan’s automatic and default features?

To help employees save for retirement, many 401(k) plans use automatic features that get you started right away. Your plan might include:

• Automatic enrollment: If your employer offers automatic enrollment, you may be automatically enrolled to contribute a percentage of your wages to the 401(k) plan. You can generally change your contribution amount or even opt out of the plan altogether, depending on how your plan is set up.
• Default contribution rate: If you’re automatically enrolled, your employer will also set  the percentage of your wages that will be deposited in your 401(k) every pay period. The default rate is just a starting point — you can keep it the same or change it to a rate that you prefer.
• Default investment: Just as plans with automatic enrollment set a contribution rate for you, they also automatically start you off with a specific investment option — often a target date fund. You can switch to a different fund or funds if you like.
• Auto escalation: With auto escalation, the percentage of your salary you contribute to your 401(k) increases automatically each year — typically by one percentage point per year — until you reach a cap. For example, if you’re contributing 6% this year, your plan may automatically increase your contribution to 7% next year, until the plan’s maximum escalation limit is reached.

What are the eligibility requirements?

By law, you must be allowed to contribute to your 401(k) account if you’ve reached age 21 and after one year of service.¹ It’s helpful to understand your new employer’s rules so you can start saving for your future as soon as you are eligible.

Read more: 401(k) matching example: Potential growth over time

The date in the name of the target date fund is the assumed date of retirement. The asset allocation becomes more conservative as the fund nears the target retirement date; however, the principal value of the fund is never guaranteed.

Investing involves risk, including possible loss of principal.