Finance

A 401(k) match is a common type of employer contribution made to a worker’s retirement plan.
Companies set “vesting” schedules that dictate how long it takes for matching contributions to fully belong to the worker.
In 30% of 401(k) plans that offer a match, it can take up to five or six years, according to data from the Plan Sponsor Council of America.

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44% of plans offer a ‘rare’ advantage

Companies use different timelines, or vesting schedules, to determine how long it takes for savers to fully own the employer contributions.

In some cases, they must work at a company at least six years before the funds are theirs. They risk forfeiting some of the money, and investment earnings, if they walk away early.
A worker retains complete ownership of their match when it is 100% vested. One important note: An employee always fully owns their own contributions.

More than 44% of 401(k) plans offer immediate full vesting of a company match, according to the PSCA survey. This means the worker owns the whole match right away, which is the best outcome for savers. That share is up from 40.6% in 2012.

For the rest, vesting timelines may vary

The rest, 56% of 401(k) plans, use either a “cliff” or “graded” schedule to determine the timeline.
Cliff vesting grants ownership in full after a specific point. For example, a saver whose 401(k) uses a three-year cliff vesting fully owns the company match after three years of service. However, they get nothing before then.
Graded schedules phase in ownership gradually, at set intervals. A saver with a five-year graded schedule owns 20% after year one, 40% after year two and so on until reaching 100% after the fifth year.
For example, someone who gets 40% of a $5,000 match can walk away with $2,000 plus 40% of any investment earnings on the match.
Federal rules require full vesting within six years.

Almost 30% of 401(k) plans use a graded five- or six-year schedule for their company match, according to the PSCA survey. This formula is most common among small and midsize companies.
Vesting schedules tend to be a function of company culture and the philosophy of executives overseeing the retirement plan, Ellen Lander, principal and founder of Renaissance Benefit Advisors Group, based in Pearl River, New York, previously told CNBC.
Further, there are instances in which a worker may become 100% vested regardless of the length of their tenure.
For example, the tax code requires full vesting once a worker hits “normal retirement age,” as stipulated by the 401(k) plan. For some companies, that may be age 65 or earlier.
Some plans also offer full vesting in the case of death or disability. More

Matt Murphy, president and CEO of Marvell Technology
Adam Jeffery | CNBC

Check out the companies making headlines before the bell:
Marvell Technology — Marvell Technology surged 17% in premarket trading after reporting a top-and-bottom beat in its first quarter. Marvell posted adjusted earnings of 31 cents per share, topping estimates for 29 cents, according to Refinitiv. It reported $1.32 billion in revenue, while analysts polled by Refinitiv expected $1.3 billion. It expects revenue growth will accelerate in the second half of the fiscal year.

Gap — Shares of the apparel retailer jumped more than 11% premarket despite the company posting net losses and declining sales Thursday for its most recent quarter, as investors cheered Gap’s big improvement in its margins thanks to reduced promotions and lower air freight expenses.
Workday — Workday jumped 9% after topping first-quarter expectations on the top and bottom lines. The financial management software firm also named a new chief financial officer, Zane Rowe, and raised the low end of its full year subscription revenue guidance. 
Autodesk — Autodesk rose 1% in premarket trading. The software company reported first-quarter results that were in line with analysts’ expectations. It gave second-quarter guidance that was weaker than expected, while its full year outlook was roughly in line. 
Deckers Outdoor — Deckers Outdoor fell 2% in premarket trading. The lifestyle footwear company reported fourth-quarter results that exceeded analysts’ expectations, according to Refinitiv. However, it gave full year earnings and revenue guidance that was lower than expected. 
RH — Shares of the retailer fell more than 3% in premarket trading despite RH beating estimates for its fiscal first quarter in a Thursday evening report. The company reported $2.21 in adjusted earnings per share on $739 million of revenue. Analysts surveyed by Refinitiv were looking for $2.09 in earnings per share on $727 million of revenue. However, RH’s second-quarter revenue guidance was short of expectations, and the company warned of increased markdowns. 

Ulta Beauty — Ulta Beauty slid 9% in premarket trading even after the beauty retailer posted strong earnings and revenue for the first quarter. It very slightly raised full year revenue guidance, and reaffirmed earnings per share guidance. However, comparable sales grew slightly less than expected.
— CNBC’s Tanaya Macheel and Jesse Pound contributed reporting More

Klarna posted a net loss of 1.3 billion Swedish krona ($120.7 million) in the March quarter, down 50% from the same period a year ago.
The company reported total net operating income of 5 billion Swedish krona, up 22% year-over-year.
The results show how Klarna is making “significant strides” toward profitability on a monthly basis by the second half of 2023, the firm said.

Sebastian Siemiatkowski, CEO of Klarna, speaking at a fintech event in London on Monday, April 4, 2022.
Chris Ratcliffe | Bloomberg via Getty Images

Klarna, the Swedish buy now, pay later fintech company, halved its net loss in the first quarter, recording a significant improvement in its bottom line after a major cost-cutting drive.
The company posted a net loss of 1.3 billion Swedish krona ($120.7 million), down 50% from the 2.6 billion krona loss in the same period a year ago.

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Klarna reported total net operating income of 5 billion Swedish krona, up 22% year-over-year.
“This quarter we’ve impressively managed to grow GMV and revenue, at the same time as we cut costs and credit losses, and also investing ambitiously in AI driven products,” Klarna CEO Sebastian Siemiatkowski said in a statement.
“We are on track to achieve profitability this year all while revolutionizing shopping and payments through our AI-powered approach.”
Siemiatkowski previously told CNBC the company was planning to achieve profitability in the second half of 2023.
Klarna attributed the latest reduction in losses to a fall in customer defaults thanks to an improvement in its underwriting, as well as to diversification into other sources of revenue, such as marketing.

The results show how Klarna is making “significant strides” toward profitability on a monthly basis, the firm said.
Klarna, which now has more than 150 million customers, was in April given a credit rating of BBB/A-3 with a stable outlook by S&P Global. The ratings agency at the time said this reflected Klarna’s “ability to defend its robust e-commerce position in its key markets, rebuild profitability,” and “maintain a strong capital buffer.”
Early indications signal that Klarna’s deep cost-cutting measures are starting to pay off. The company went on a hiring spree during 2020 and 2021 to capitalize on growth triggered by the Covid-19 pandemic, and was forced to reduce headcount by roughly 10% in May 2022 in response to investor pressure to slim down operations. Despite this measure, it still later lost 85% of its market value in a funding round last summer.
Klarna is not alone in its troubles. Buy now, pay later firms, which allow shoppers to defer payments to a later date or pay over installments, have been particularly impacted by souring investor sentiment on technology, amid a worsening macroeconomic environment.

AI push

More recently, Klarna has turned its focus toward AI. The company revamped its app with a more advanced AI recommendation algorithm to help its merchants target customers more effectively.
Klarna previously launched the ability to integrate OpenAI’s ChatGPT into its service with a plugin that lets users ask the popular AI chatbot for shopping inspiration. The company said it was embedding AI in its business to “improve internal efficiencies and provide customers with an even better service and experience,” for example through real-time translations in customer chat.
The company has now also made a foray into facilitating short-term holiday rentals. Earlier this month, Klarna announced a partnership with Airbnb to let the online vacation rental firm’s customers book holidays and pay down the cost over installments. More

The Fed has consistently reiterated its commitment to fight inflation, but minutes from the last FOMC meeting showed officials were divided over where to go on interest rates.
“If the economy avoids [recession] and keeps on its frothy path, then I think we’re going to have some problems in the market in the second part of the year,” Yoshikami told CNBC on Friday.

Traders work on the floor of the New York Stock Exchange during morning trading on May 17, 2023 in New York City. 
Michael M. Santiago | Getty Images

A U.S. recession may prevent a steep market downturn in the second half of 2023, according to Michael Yoshikami, founder and CEO of Destination Wealth Management.
U.S. consumer price inflation eased to 4.9% year-on-year in April, its lowest annual pace since April 2021. Markets took the new data from the Labor Department earlier this month as a sign that the Federal Reserve’s efforts to curb inflation are finally bearing fruit.

The headline consumer price index has cooled significantly since its peak above 9% in June 2022, but remains well above the Fed’s 2% target. Core CPI, which excludes volatile food and energy prices, rose by 5.5% annually in April, amid a resilient economy and persistently tight labor market.
The Fed has consistently reiterated its commitment to fight inflation, but minutes from the last Federal Open Market Committee meeting showed officials were divided over where to go on interest rates. They eventually opted for another 25 basis point increase at the time, taking the target Fed funds rate to between 5% and 5.25%.
Chairman Jerome Powell hinted that a pause in the hiking cycle is likely at the FOMC’s June meeting, but some members still see the need for additional rises, while others anticipate a slowdown in growth will remove the need for further tightening. The central bank has lifted rates 10 times for a total of 5 percentage points since March 2022.

Despite this, the market is pricing cuts by the end of the year, according to CME Group’s FedWatch tool, which puts an almost 35% probability on the target rate ending the year in the 4.75-5% range.
By November 2024, the market is pricing a 24.5% probability — the top of the bell curve distribution — that the target rate is cut to the 2.75-3% range.

Speaking to CNBC’s “Squawk Box Europe” on Friday, Yoshikami said the only way that happens is in the event of a prolonged recession, which he said is unlikely without further policy tightening as falling oil prices further stimulate economic activity.
“This is going to sound crazy, but if we don’t go into slower economic growth in the United States and maybe even a shallow recession, that might be actually considered a negative because interest rates might not be cut or might even continue to go up if that’s the case. That’s the risk for the market,” he said.
‘Be skeptical’
Yoshikami believes more companies are going to begin guiding the market more conservatively on forward earnings in anticipation of borrowing costs staying higher for longer and squeezing margins.
“To me, it all really is gonna come down to ‘is the economy gonna touch near a recession?’ Believe it or not, if that happens, I think it will be good news,” he said.
“If the economy avoids it and keeps on its frothy path, then I think we’re going to have some problems in the market in the second part of the year.”
Federal Reserve officials, including St. Louis Fed President James Bullard and Minneapolis Fed President Neel Kashkari, have in recent weeks indicated that sticky core inflation may keep monetary policy tighter for longer, and could require more hikes this year.

Yoshikami said the actual process of cutting rates would be a “drastic move” despite market pricing and suggested policymakers may try to “massage” market expectations in a certain direction through speeches and public declarations, rather than definitive policy action in the near term.
As a result of the tenuous path for monetary policy and the U.S. economy, the veteran strategist warned investors to “be skeptical” of valuations in certain portions of the market, particularly tech and AI.
“Think about it, look at it yourself and ask yourself this question: is this a reasonable stock given what we think the earnings are going to be for the next five years? If it’s not, you’re putting an optimism premium on that asset that you better be awfully sure about because that’s where, really, tears come,” he said. More

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Investors piling into stocks with artificial intelligence exposure may pay a hefty price.
Economist David Rosenberg, a bear known for his contrarian views, believes enthusiasm surrounding AI has become a major distraction from recession risks.

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“No question that we have a price bubble,” the Rosenberg Research president told CNBC’s “Fast Money” on Thursday.
According to Rosenberg, the AI surge has striking similarities to the late 1990s dot-com boom —particularly when it comes to the Nasdaq 100 breakout over the past six months.
“[This] looks very weird,” said Rosenberg, who served as Merrill Lynch’s chief North American economist from 2002 to 2009. “It’s way overextended.”
This week, Nvidia’s blowout quarter helped drive AI excitement to new levels. The chipmaker boosted its yearly forecast after delivering a strong quarterly earnings beat after Wednesday’s market close. Nvidia CEO Jensen Huang cited booming demand for its AI chips.
Nvidia stock gained more than 24% after the report and is now up 133% over the last six months. AI competitors Alphabet, Microsoft and Palantir are also seeing a stock surge.

In a recent note to clients, Rosenberg warned the rally is on borrowed time.
“There are breadth measures for the S&P 500 that are the worst since 1999. Just seven mega-caps have accounted for 90% of this year’s price performance,” Rosenberg wrote. “You look at the tech weighting in the S&P 500 and it is up to 27%, where it was heading into 2000 as the dotcom bubble was peaking out and soon to roll over in spectacular fashion.”
While mega cap tech outperforms, Rosenberg sees ominous trading activity in banks, consumer discretionary stocks and transports.
“They have the highest torque to GDP. They’re down more than 30% from the cycle highs,” Rosenberg said. “They’re actually behaving in the exact same pattern they have going into the past four recessions.”
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JPMorgan Chase is developing a ChatGPT-like software service that leans on a disruptive form of artificial intelligence to select investments for customers, CNBC has learned.
The company applied to trademark a product called IndexGPT earlier this month, according to a filing from the New York-based bank.
“It’s an A.I. program to select financial securities,” said trademark lawyer Josh Gerben. “This sounds to me like they’re trying to put my financial advisor out of business.”

Jamie Dimon, chief executive officer of JPMorgan Chase, is planning his first visit to mainland China in four years as the American bank prepares to host three conferences in Shanghai at the end of May.
Giulia Marchi | Bloomberg | Getty Images

JPMorgan Chase is developing a ChatGPT-like software service that leans on a disruptive form of artificial intelligence to select investments for customers, CNBC has learned.
The company applied to trademark a product called IndexGPT this month, according to a filing from the New York-based bank.

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IndexGPT will tap “cloud computing software using artificial intelligence” for “analyzing and selecting securities tailored to customer needs,” according to the filing.
The viral success of OpenAI’s ChatGPT technology last year has forced entire industries to grapple with the arrival of artificial intelligence. ChatGPT, which uses massive language models to create human-sounding responses to questions, has ignited an arms race among tech giants and chipmakers over what is seen as the next foundational innovation.
The technology has a range of possible uses in finance. Banks including Goldman Sachs and Morgan Stanley have already begun testing it for internal use. That includes ways to help Goldman engineers create code or answer Morgan Stanley financial advisors’ queries.

First mover?

But JPMorgan may be the first financial incumbent aiming to release a GPT-like product directly to its customers, according to Washington D.C.-based trademark attorney Josh Gerben.
“This is a real indication they might have a potential product to launch in the near future,” Gerben said.

“Companies like JPMorgan don’t just file trademarks for the fun of it,” he said. The filing includes “a sworn statement from a corporate officer essentially saying, ‘Yes, we plan on using this trademark.'”
JPMorgan must launch IndexGPT within about three years of approval to secure the trademark, according to the lawyer. Trademarks typically take nearly a year to be approved, thanks to backlogs at the U.S. Patent and Trademark Office, he said.
The applications are typically vaguely written to give companies the broadest possible protections, Gerben said.
But JPMorgan’s filing does specify that IndexGPT uses the same flavor of A.I. popularized by ChatGPT; the bank plans to use A.I. powered by “Generative Pre-trained Transformer (GPT) models.”
“It’s an A.I. program to select financial securities,” Gerben said. “This sounds to me like they’re trying to put my financial advisor out of business.”
JPMorgan declined to comment for this article.

Middlemen fears

Financial advisors have long feared the arrival of technology good enough to displace their role in markets. Those fears have largely yet to materialize.
Wealth management firms, including Morgan Stanley and Bank of America’s Merrill, offer simple roboadvisor services, but that hasn’t stopped their human advisors from gathering billions of dollars more in assets.
Earlier this week, executives at JPMorgan touted their progress in applying A.I. across operations at the company’s annual investor conference.
The bank, which employs 1,500 data scientists and machine-learning engineers, is testing “a number of use cases” for GPT technology, said global tech chief Lori Beer.
“We couldn’t discuss A.I. without mentioning GPT and large language models,” Beer said. “We’ve recognized the power and opportunity of these tools and are committed to exploring all the ways they can deliver value for the firm.” More

Pedestrians walk past a Gap Inc. store in Shanghai.
Qilai Shen | Bloomberg | Getty Images

Check out the companies making headlines in after-hours trading.
Gap — Shares surged 15% in the postmarket following the retailer’s earnings report, which showed a major improvement in margins. Revenue was a hair below expectations, coming in at $3.28 billion, while analysts polled by Refinitiv anticipated $3.29 billion.

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Costco — Shares slipped 0.2% after the retailer posted a miss on revenue, recording $53.65 billion for its fiscal third quarter while analysts forecast $54.57 billion, per Refinitiv. Costco saw $3.43 in adjusted earnings per share, higher than the $3.29 anticipated by analysts.
Ulta Beauty — Shares of Ulta fell 8% in extended trading after the cosmetics retailer reaffirmed guidance for earnings and comparable sales for the full year. Ulta slightly raised its outlook for revenue for the year. The company posted earnings of $6.88 per share on $2.63 billion in revenue. Analysts called for earnings of $6.87 per share and revenue of $2.62 billion, according to Refinitiv.
Workday — The cloud stock added 7% after hours following a strong earnings report and its announcement of a new chief financial officer. Workday reported $1.31 in adjusted earnings per share, while analysts polled by Refinitiv estimated $1.12. The company also narrowly beat expectations for revenue, coming in at $1.68 billion against a $1.67 billion forecast. Workday also announced Zane Rowe, most recently chief financial officer of VMware, would be the finance chief starting next month.
Marvell Technology — Shares jumped 14% in post-bell trading after the semiconductor producer beat analysts’ expectations for its first quarter. Marvell notched 31 cents in adjusted earnings per share on $1.32 billion in revenue, while analysts polled by Refinitiv estimated 29 cents per share and $1.3 billion in revenue. The company also said revenue growth should accelerate in the second half of the fiscal year.
RH — Luxury retailer RH slipped 3% after hours as weak guidance for the current quarter pulled attention from strong first-quarter earnings. The company said to expect between $765 million and $775 million in revenue in the current quarter, lower than the Street’s estimate of $784 million, according to Refinitiv. Still, RH beat expectations on revenue in the first quarter, posting $739 million compared with analysts’ forecast of $727 million.
— CNBC’s Darla Mercado contributed reporting. More

The market may contract along with the economy in a possible recession, but there are two ways retirees can protect the invested savings they’re living off of, says Christine Benz, director of personal finance and retirement planning at Morningstar.
One of those defenses is changing the source of withdrawals — for example, pulling from cash or bonds instead of stocks.
The second defense is to reduce the overall dollar amount retirees withdraw from their investments.

Getty | mihailomilovanovic

The federal debt-ceiling standoff and the specter of a possible recession on the horizon may mean turbulent times ahead for the stock market — and that’s especially worrisome for retirees who rely on their investment portfolios for income.
Retirees are generally advised to hold some stocks as part of their nest egg. Stocks serve as a long-term growth engine, helping to beat inflation’s negative impact over decades of retirement in a way that cash and bonds generally can’t.

But pulling too much money from stocks during periods of sustained losses can be dangerous for retirees. The risk is particularly acute for people who’ve recently retired.
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Fortunately, there are ways retirees can cut that risk.
“You really have two defenses if you’re retired and are pulling from your portfolio for your living expenses,” said Christine Benz, director of personal finance and retirement planning at Morningstar.
One of those defenses is changing the source of withdrawals — for example, pulling from cash or bonds instead of stocks. Ideally, retirees would pull from an asset type that hasn’t been declining in value, Benz said.

That’s sometimes a tough proposition: 2022 was a rare case when stocks and bonds both suffered steep losses.
The second defense is to reduce the overall dollar amount retirees withdraw from their investments, Benz said.

Why retirees need to be careful

Here’s the crux of the issue: When the stock market pulls back, investors must sell more of their stocks to generate the same level of income. When the market eventually stabilizes and swings positive, the portfolio has less of a runway for growth.
If retirees aren’t careful, this dynamic may cause them to run out of money sooner than expected in their later years.

Here’s one way to think about it: Retirees often peg the amount of their annual withdrawal to a percentage of their portfolio, perhaps somewhere in the range of 3% to 5%.
If a retiree continues to pull the same dollar amount from that portfolio after stocks suffer a prolonged decline, that share could jump to 7% or 8%, for example — a perhaps-unsustainable amount that inadvertently hobbles the portfolio, said David Blanchett, head of retirement research at PGIM, the investment management arm of Prudential Financial.
The key is flexibility, to the extent retirees have wiggle room, he said.

Economy, market pullbacks aren’t a sure thing

There are many caveats here.
For one, a stock-market pullback isn’t guaranteed in the near term. U.S. lawmakers may reach a debt-ceiling deal by early June and avert likely financial chaos.
And while Federal Reserve economists expect the U.S. to tilt into a mild recession later this year, it’s not guaranteed. Neither is a stock-market pullback if an economic downturn does materialize; while stocks frequently contract during recessions, there are instances (like in the early 1980s and 1990s) when that didn’t happen, according to a Morningstar analysis.
Further, adjusting withdrawal behavior is more important for younger retirees — especially healthier ones expecting to tap their nest egg for decades.  

You really have two defenses if you’re retired and are pulling from your portfolio for your living expenses.

Christine Benz
director of personal finance and retirement planning at Morningstar

Consider this illustration of risk from Charles Schwab, which examines two newly retired individuals with $1 million portfolios and $50,000 annual withdrawals (adjusted for inflation).
The only difference between them is when each experiences a 15% portfolio loss. One suffers a 15% decline in the first two years of retirement, and a 6% gain each year thereafter. The other has a 6% annual gain for the first nine years, a negative 15% return in years 10 and 11, and a 6% annual gain thereafter.
Here’s the kicker: The first investor would run out of money after 18 years, while the second would have about $400,000 left.
It may also be easier for certain retirees to be flexible than others.
For example, some may cover all or the majority of their necessities (like food and housing costs) from guaranteed income sources like Social Security, a pension or an annuity. They may more easily be able to throttle back spending from stocks or a broader investment portfolio, if it’s largely being tapped just for discretionary purchases like vacations and entertainment.

How to be flexible

Marko Geber | Digitalvision | Getty Images

There are several approaches retirees can take to be flexible with withdrawals, such as a “guardrail” strategy or forgoing inflation adjustments in down years.
Here’s one easy rule of thumb: Using your personal life expectancy to determine if you’re withdrawing a safe amount of money from year to year, Blanchett said.
(There are many online calculators that estimate how long you’ll live — and therefore how long you must make your retirement savings last. Blanchett recommends the Actuaries Longevity Illustrator from the American Academy of Actuaries and Society of Actuaries.)
The calculation is simple: Divide 1 by your life expectancy, which will yield a reasonable starting point (in percentage terms) for a safe portfolio withdrawal.  
For example, if a retiree determines their longevity to be 20 years, they’d use this calculation: 1/20 X 100. That yields a 5% withdrawal rate.
“It’s really important to take the temperature of the withdrawal rate on an ongoing basis,” Blanchett said. More