Merck, headquartered in Rahway, New Jersey, is a popular employer for many residents of the Garden State. As part of our blog series on retirement in New Jersey, we’re going to talk about some of the Merck employee benefits you can use to save for retirement. In this article we’ll discuss the Merck 401(k) plan, how the Merck 401k match works, the Merck defined benefit plan, and Merck Restricted Stock Units.
Hello Gardenstaters! Before we get started, you may want to check out other New Jersey finance blogs we’ve written:
Why is the cost of living so high in New Jersey?
A checklist for moving to Morristown, NJ from NYC
What is the average income in New Jersey?
What is the New Jersey 529 Plan and should I use it to send my kids to college?
Should you buy a New Jersey vacation home?
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We are financial advisors based in Morristown, NJ, serving clients in New Jersey and across the country. Just to be clear, we’re not affiliated with Merck in any way, and what we discuss is based upon what we have learned from our clients and other sources, and all of this is subject to change. All of this is a long way of saying that you should conduct your own research in order to make an informed decision, and none of what we discuss in this article may be interpreted as financial advice specific to any one individual.
And now – onto the blog!
What is a 401k?
Before we get into how the Merck 401(k) plan works, let’s start with a basic definition. You may be wondering what a 401(k) plan actually is.
A 401(k) plan is a type of profit-sharing plan your employer may provide to you. It allows you to contribute to an individual account held in your name on a pre-tax basis. Usually a percentage of your salary is automatically debited out periodically (each week, each month, etc.)
Once the funds are deposited into your account, you can pick from a menu of fund options to invest the money. You, the employee, make the decision about how to invest the money; the fund options presented are not endorsed or recommended by Merck. The money grows on a tax deferred basis until you withdraw it.
In recent years, a new 401(k) option has become popular: the Roth 401(k). In this scenario, contributions are made on an after-tax basis, grow tax free, and are not taxed upon distribution.
What is 401k matching?
If you are using the Merck 401(k) plan, 401(k) matching is a wonderful benefit that you should know about!
Remember when we told you how your contributions are made from your paycheck directly into your 401k account? Well, what if we told you that you aren’t the only one who could potentially fund the account?
Get this: Merck itself may potentially put money into your 401k!
Whatever you contribute, Merck may match up to 4.5% of the amount and deposit it into your account on your behalf. With the Merck 401k plan, the money is immediately vested; this means that if you were to leave the next day, you could take the entire amount that Merck “matched”, or contributed on your behalf.
The 401k contribution limit for 2022 is $20,500. This means that the total of all your contributions and any matching contributions that Merck makes can not exceed this amount. There is also a catch-up provision for savers over age 50; they can contribute an additional $6,500 for 2022.
What is the Merck 401k?
Employees have the option to utilize the Merck 401k, whose technical name is the Merck US Savings Plan. According to the Summary Plan Description, the investment options fall into three major categories:
- Target date retirement funds
Target date retirement funds use your age as the basis for the asset allocation, or mix of stocks, bonds, and other asset classes. The older you get, the more the mix tends to shift towards more conservative investments and away from riskier ones.
- Core Funds – a broad menu of both active and passive funds
Active funds make bets on changes in market conditions with the hope of beating the index. On the other hand, passive funds look to match the performance of an index.
- Fidelity Brokerage®Link
This is a do-it-yourself option that provides you with access to thousands of additional investment options. This is a brokerage account that you direct and it is still part of your 401k plan.
The Merck defined benefit plan
Let’s start with the definition of a defined benefit plan.
When we described the Merck 401k plan above, we mentioned that the risk is on the employee. The employee makes all decisions about which funds to invest the contributions with.
In contrast, with a defined benefit plan, the employer is the one who invests the money. Like with the Merck 401k, your contribution to the defined benefit plan comes out of your salary pre-tax. However, the money is then taken and invested according to calculations (called actuarial assumptions) made by the plan sponsor. It’s done in a way that will allow the plan, collectively, to have enough money to render a set, or defined, benefit payment (pension payment) to all employees when they retire.
All of this is to say that you don’t need to worry about making investment decisions with the Merck defined benefit plan – you can sit back and relax because the onus is on the plan sponsor, appointed by Merck, to invest the money.
As for the Merck defined benefit plan specifications, here’s what you’ll need to know. According to the Merck benefits brochure:
- You’re eligible after 5 years of service.
- You are automatically enrolled once you qualify.
- You are 100% vested after 3 years of service.
- You can receive the pension benefit after you leave the company (but special rules may apply if you worked for the company before and accrued a benefit)
Merck Restricted Stock Options
Merck offers Restricted Stock Options (RSU’s) to certain employees.
But first – what is an RSU?
It is a share of company stock given to an employee, and they vest in accordance with a certain schedule that the company sets out. You can’t sell the shares until they vest.
When they vest, you receive the shares and at that point you are taxed on the shares. It counts as taxable income equal to the market value (number of shares multiplied by the price) of the position.
It’s important for Merck employees to design a strategy for what to do after the shares vest. Some people, after receiving Merck RSU’s, may choose not to sell them. In this scenario, they may experience lower income than if they had sold the shares (along with the tax liability of the vested shares), but there is potential to reap gains if the stock appreciates. Others may view it as a part of their total compensation package, sell the shares after they vest and the tax liability is incurred, and take the income instead of holding the shares.
This is a highly personal decision, and we encourage you to map it out using information such as your cash flow needs, goals, and tax bracket. A financial advisor or CPA can assist with this analysis.
Final thoughts on the Merck 401k plan
We hope you’ve enjoyed our blog on what you need to know about the Merck 401k, the Merck defined benefit plan, and Merck Restricted Stock Units.
We are financial advisors in Morristown, NJ serving the local community and beyond. If you have questions about your Merck retirement benefits, retiring in New Jersey, moving there, affording to live there, or (like us) are just plain old Bruce Springsteen fans, reach out and send us a message.
Sources
Merck & Co. Form 11-K. (2019, June 17th). https://www.sec.gov/Archives/edgar/data/310158/000031015817000030/a2017form11-k_merckussavin.htm
Total Rewards at Merck. (2019 December) https://cdn.phenompeople.com/CareerConnectResources/MERCUS/documents/Total_Rewards_at_Merck_Recruiting_Brochure-2020-1604579785839.pdf
Disclosures
Glassner Carlton Financial has no affiliation with Merck. Glassner Carlton communicates with its clients and the public in writing and verbally about Merck employee benefits, but there is no guarantee that the information presented on this website and its associated links is accurate. The information presented herein is subject to change at any time, and Glassner Carlton is under no obligation to update it. For questions regarding your Merck retirement or employee benefits, please contact your employer.