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.”