Survey Says | Published in July 2012

How Strong an Incentive Is the Company Match?

When it comes to the power of the company match as an incentive for employees to participate in their employer-sponsored retirement plans, research results have gone both ways.

By PLANSPONSOR staff | July 2012
Illustration by Lauren Tamaki

Some studies report that the company match is a strong incentive for participation, while others show it has limited effect on participation rates.

So NewsDash readers were asked: “How strong an incentive do you think a company match contribution is in getting employees to participate in their employer’s retirement plan?”

Fifteen percent of respondents said a company match is the No. 1 incentive for employees to participate, while 46% said it is a very strong incentive. Fifteen percent said a company match is a somewhat strong incentive, and 21% indicated that it definitely helps motivate participation. Two percent believe offering a company match makes no difference in an employee’s decision to participate.

A vast majority agreed that an employee’s own desire to save for retirement is a stronger enticement to participate in an employer plan than the company match. This was followed by an employee’s salary (44%) and an employee’s age or years to retirement (38%).

Twenty-six percent of NewsDash readers responding to the survey indicated that employee education creates a stronger desire to participate in an employer plan than the company match, while 12% said the availability of advice was a stronger driver for participation. Eight percent chose a vesting schedule as a greater incentive to participate, and 5% selected the investment choices in the plan.

“Other” responses (12%) included income deferral; pretax payroll deduction; the extent to which the employer urges the employee to save; tax savings; and auto-enrollment and escalating contribution rates.

Among the following verbatim comments, one was particularly interesting:

“It is an incentive for some but not strong. Before auto-enrollment, I found informal employee peer pressure to be [the] most influential factor. We had a consistent 95% to 98% participation rate in a pre-401(k) (i.e., contributions after tax), 30,000-employee, thrift savings plan with a good match. The reason was that employees hyped it both negatively—‘you’d be a fool not to participate’—and positively—
‘the company wants to give you money, take it.’”  

Other comments:

“We recently had to safe-harbor our plan, which significantly increased our match. Participation did not increase, but those who were participating increased their withholding.”  

“We have automatic enrollment and are at 95% participation. Without the match, participation would probably be closer to 50%.”  

“Exactly half [of] our participants balance their deferrals with the maximum company match; I see that statistic as a ‘No. 1 incentive.’ Twenty-one percent are saving above the maximum match (down from 29% last year); 14% are settling for a less than ideal match; 14% defer the maximum the law allows, year after year and one person­ declines to participate at all.”  

“We recently purchased another company, which has very low participation in the plan. The No. 1 reason: no match.”  

“A match makes selling participation much easier, particularly [to] those who do have above-average salaries.”  

 “I have evidence that it is an incentive because when it was taken away at our company three years ago, large numbers of people dropped out or decreased [contributions] to a very low [percentage] rate.”  

“Those who are inclined to save will do so whether or not there is a match; those who are not will not do so, regardless of how rich a match is offered.”  

“I think, for younger and lower-paid employees, it is a huge factor. It is something that gets them to think about saving (the idea of ‘free’ money).”  

“The matching contributions help, but, in my observation with my employees, it only helps if they actually want to save. It amazes me how many people complain that they cannot afford to save money but then go on multiple vacations, pay their adult kids’ bills, etc.”