Done correctly players can get hundreds of thousands in retirement plan contributions, countless tax savings, and access to lifelong health care.
Retirement planning for professional athletes is a mix of understanding specific information and how it connects to your life.
I had seen the big contract numbers. I had heard of the opportunities Major League Baseball players had. Yet, one thing I didn’t understand was the MLB benefits plan.
What benefits do players get?
How are those benefits calculated?
How do players access those benefits?
What things should players be aware of?
I remember hearing my agent talk about all the benefits I was getting by being put on the 40-man roster but I didn’t get it.
In this article, I am going to break down everything Major League Baseball players need to know about the MLB retirement plan in 2024.
MLB Retirement Plan
To unlock the full benefits of the MLB retirement plan you must do two things:
· Be on an MLB 40-man roster
· Be on an MLB active roster (26 players)
Think about this like levels of a game.
The first level (40-man roster) unlocks certain benefits.
The second level (MLB active roster) unlocks additional benefits.
The longer you play at those levels the greater the benefits.
The 40-Man Roster Benefits
The 40-man roster is the roster of players eligible to be added to the active roster. This is a collection of the team's starters, role players, fill-in pieces, and top prospects.
Players who achieve 40-man roster status are eligible for certain employee benefits through the Major League Baseball Players Association.
The biggest benefit is the MLB player “Active” health care plan. This is arguably one of the greatest healthcare plans in the world.
It is a privately run plan administered through Aetna. The plan calls for minimal out-of-pocket costs to players. The premiums (cost of the policy) while active on a 40-man roster are covered by the teams.
One important note for players to understand is once they are added to the 40-man roster it is critical to add all family members. While active players are automatically added upon their addition to the 40-man roster, their families are not. It is the player's responsibility to ensure their family is added.
As financial advisors for professional athletes, we ensure all player's families are correctly added to the proper forms.
Active Roster Benefits
The active roster consists of 26 players as of 2024. These are players that are eligible to play in regular-season games. To be on the active roster you must first be added to the 40-man roster.
While healthcare benefits are great, the real benefits kick in for players on the active roster.
To understand how players access these benefits we have to understand MLB service time, how it is calculated, and how it affects players' benefits.
MLB Service Time
MLB service time is the time a player receives for each day they are on the active roster.
While an MLB season is 162 games, service time is calculated based on the number of duty days in a given year.
To acquire a “full season” of MLB service time a player must achieve 172 days on the active roster. For context, the typical MLB season has between 180 and 190 duty days.
Why does this matter?
The three biggest benefits active players receive are:
· 401(k) Benefits
· MLB Pension Benefits
· Healthcare Benefits Post Playing (more on that later)
Each one of these benefits starts to kick in based on service time.
Here are the key service time figures and benefits received:
1 Day: One day of MLB service time provides players eligibility to contribute that day’s paycheck to the MLB 401(k) Plan. This plan is administered through Vanguard.
*As of 2024, Minor League Players are also eligible for 401(k) contributions.
43 Days: 43 days of MLB service time is equal to one-quarter of a season. This milestone for a player gives them team contributions to the 401(k) and MLB pension benefits.
172 Days:172 days of MLB service time gives a player of 1 full year. This milestone gets a player closer to arbitration (approximately 3 years of MLB service time) and MLB free agency (6 years of MLB service time).
4 Years: 4 years of MLB service time provides players with access to the health care plan after playing. While it switches and players have to pay the premiums this is an incredible benefit for retired players with four years or more of service time.
10 Years:10 years of MLB service time provides players with full pension. This is the holy grail for any MLB player. The full pension is currently $275,000.
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Now that we understand MLB service time and how it effects player’s benefits let’s dive into the details of each benefit a player can receive.
Remember the three biggest benefits active MLB players receive are:
The three biggest benefits active players receive are:
· 401(k) Benefits
· MLB Pension Benefits
· Healthcare Benefits Post Playing
401(k) Benefits
In 2024, a player can contribute $23,000 in “pre-tax” money to his 401(k) plan. This means he would receive a tax deduction for his contribution.
Example: A player making $1,000,000 contributes $23,000 to the plan and has a taxable income of $977,000 instead of the full $1,000,000. A potential tax savings of more than $8,500 assuming the 37% federal tax bracket.
Unlike most company 401(k) plans the MLB 401(k) plan provides no match. Instead, teams provide direct contributions to players 401(k) plans.
The exact number is calculated based on the luxury tax teams’ pay.
*The luxury tax is a calculation based on a team going over certain spending thresholds.
In 2023, teams contributed $10,000 per quarter (43 days) of MLB service time a player had.
Remember, how I said 43 days of MLB service time mattered?
It is estimated by the MLBPA that in 2024 teams will be contributing even more to players' 401(k) plans due to the 2023 luxury tax bill.
MLB Pension Benefits
While most pensions are going away, the MLB pension remains. In fact, it is one of the best in the world.
Each year the pension benefits increase to the highest allowable by law.
In 2024, the current pension benefits are as follows:
43 days of MLB service time = $6,875 pear
1 year of MLB service = $27,500 per year
10 years of MLB service = $275,000 per year
Players receive these benefits with each quarter (43 days) of MLB service time they acquire.
To achieve full pension benefits players need to wait until age 62. Players do have early access to pension benefits at the age of 45.
MLB players need experts in athlete wealth management to provide calculations on when would be most optimal for them to take their pension benefits.
Health Care Benefits
While every player added to the 40-man roster is automatically added to the MLB health care plan, certain service time thresholds provide additional benefits.
Players who acquire four years of MLB service time are eligible to stay on the health care plan in retirement.
Players who choose to stay on the plan are required to cover the premium (cost of the policy) payments.
A few key notes on the policy:
· Enrollment/Changes to the policy are due by opening day.
· There are three policy options (active, base, and buy down).
· Each policy option provides varying benefits and premium amounts.
· If a player elects to move off the plan, he cannot get back on the plan.
Players must understand this benefit and how it works.
As financial advisors for athletes, we run yearly analyses on the three options for players to ensure our athletes are choosing the correct plan.
To understand just how powerful this benefit is for players let's compare two plans.
The first is an open marketplace (Public plan) and the second is the “Buy Down” MLB plan. I use this example because I utilize the “buy down” plan for my family of six.
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While MLB players have countless public benefits, it is critical MLB players understand the private benefits.
Time and time again, we see athletes unaware of the benefits they have.
Athletes must work with a qualified financial team that specializes in working with Major League Baseball players.
Remember, done correctly these benefits can provide hundreds of thousands and sometimes millions of dollars in lifetime benefits.
Done incorrectly players can be left not understanding the options available to them and missing out on these benefits.
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If you are a Major League baseball player who is looking to better understand the MLBPA benefits, schedule a call, and talk with a Moment founder.
Not sure what questions to ask, check out this video on 10 questions you should ask when interviewing a financial advisor.
Get in Touch With An Advisor
Frequently Asked Questions
Here are some answers to questions I received frequently about this topic.
How many days does a player need to qualify for benefits? The majority of benefits including the MLB pension start with 43 days of service time on the active roster.
How does a player qualify for the MLB health care benefits? Players need to have at least four years of MLB service time in order to stay on the MLB health care plan after retirement.
Do players have to pay for health care benefits in retirement? Yes, players have to pay for health care premiums after their playing career ends.
How much is the MLB pension in 2024? Full pension in 2024 is $275,000 per year for players that accumulate 10 or more years of MLB service time. A player is credited $27,500 per year in pension benefits for one year of MLB service time.
What age can players take the MLB pension? MLB players can take the MLB pension as early as age 45 but to get full pension benefits a player must wait until age 62.
Can players roll over the MLB 401(k) in retirement? Retired MLB players can roll over their Vanguard MLB 401(k) plan into an IRA.
*Moment Private Wealth offers information on tax and estate planning that is general in nature. Tax and Legal advice are not provided by Moment Private Wealth. Consult an attorney or tax professional regarding your specific legal or tax situation.