KnowHow Archive

Plan Sponsor Guide Participant Guide

“Free” Money

Recent publicity offers a chance to remind participants that "free" money isn't

The matching company contribution has long been touted as a significant participation incentive, and a recent survey suggests that cutting back on the match does, in fact, have an impact.
A recent informal survey of the client base of NYLIM (New York Life Investment Management) Retirement Plan Services found that, among eight plans that either suspended or reduced their match since January 1, 2002, the average impact on plan participation was a 9.45% decline, though participation reductions ran anywhere from a 1% reduction to as much as an 18.4% decline—and the longer the match had been cut, the greater the impact on participation.
Consequently, recent announcements by Schwab, Prudential Securities, and Goodyear to either cut or reduce their company match do not bode well for retirement savings. PLANSPONSOR's 2002 Defined Contribution Services Survey of more than 2,800 401(k) plans found that average plan participation rates dipped in every market segment, even with no apparent change in company match.
There is evidence that the presence of a company match exerts a positive influence, at least according to the results of PLANSPONSOR's Top 100 Defined Contribution Plans by Participation Rate. Nearly all (94%) of the top 100 plans (average participation rate: 91.9%) offered a company match—and a company match was the most frequently cited reason for the success of those programs.
Over the years, workers apparently have begun to take the company match for granted, viewing it as a "guaranteed" contribution, rather than as an optional benefit. With the recent publicity given to match cutbacks, this could be an excellent time to help your employees realize how important that "free" money can be.
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