Non-Savers Unmoved by Match, Education

February 21, 2005 ( - You might like to think that non-participants and participants with low savings rates just need better education, or maybe a timely reminder of the money they are leaving on the table.

However, according to the findings of a new study, you’d be wrong.

The study, by Hewitt Associates, as well as researchers from Harvard University and the Wharton School of the University of Pennsylvania, found that not only did employees overall have critical misperceptions about their 401(k) plans, those misperceptions were even more pervasive among those who failed to participate, or who participated at a level less than the match threshold.


The study of 621 workers found that three-quarters of those not participating enough to receive the full match were unable to correctly identify the company match threshold as a percent of pay, nor the rate at which their employer matched their pre-tax contributions. In fact, only about a third (35%) were definitely aware of the fact that their employer even offered a matching contribution.

Worse, more than half (54%) of the low participating group not only did not know their employer offered a matching contribution – even after they were so informed, only 12% increased their contribution rate.

Their myopia extends to either areas as well. Consider investment options, where a third of survey respondents overall did not know what investments were available in their 401(k) plan – but the ratio of uncertainty more than doubled among those who were not contributing to the full match level.

Perception Realities

The level of participation has an impact much greater than plan knowledge, however. Those participating at or above the match level were more likely to say their company’s 401(k) was better than other companies’ 401(k) plan, by a margin of 46% to 37%. The Hewitt survey also found that those who contributed at or above the match threshold were more likely to say:

  • they had enough information about the rules of the 401(k) plan (74% to 57%)
  • they had a good understanding of the investment choices offered by the plan (68% to 52%)
  • they were satisfied with the investment choices offered (66% to 51%)
  • their 401(k) met their retirement needs (54% to 34%)
  • they would rather save in their 401(k) than outside it (75% to 55%)

Additionally, when asked, three-quarters of those contributing below the match threshold indicated that they did not know how much of their preretirement income they would need to replace once they retired, versus about half of those who were contributing at or above that level.

Older Workers

The Hewitt survey also considered the perceptions and behaviors of those nearing retirement. Among survey respondents, the median participant who is age 59 ½ or older believes they should ideally be saving 19% of their income per year, but the Hewitt survey said they were actually only saving 10% per year (those under age 59 ½ thought they should be saving 15%/year, but only reported saving 6% each year). The survey’s authors also noted that approximately two-thirds of those aged 59 ½ who were not participating in their 401(k) said they do not intend to ever participate, compared to less than a quarter of those under age 59 ½. However, of the roughly one-third of nonparticipants below age 59 ½ who said they planned to start saving in the plan within two months following the survey – only 12.5% actually did.

The most popular reason given by those older than 59 ½ for not participating was, “There’s always a chance I might be changing jobs or retiring soon”, cited by a third of those respondents. “I can’t afford to save right now” was second, cited by 25%, while “I’m worried about corporate scandals and accountability” was third most commonly cited (18%). Younger workers were most likely to cite “I can’t afford to save right now” as a reason for non-participating (14%), while concern about scandals and accountability was second-most often cited.

The survey’s authors noted the following challenges/opportunities from their analysis of the data:

  • Lack of comfort with the investment process remains a deterrent to retirement saving
  • Lack of urgency and conviction are also barriers, but in general employees know the importance of savings
  • Influencing factors such as affordability, job security, and confidence in the markets may be more perceived than real – but they still affect workers’ willingness to save, and
  • Workers may have excellent intentions when it comes to retirement savings – and still fail to act.