Stretching the Match a Motivation to Save More

Research finds many retirement plan participants use the match as a guide for how much to save in their plans.

The company match can act as a powerful incentive that drives employee behavior, says Michael Ericson, an analyst with LIMRA Secure Retirement Institute.

A study released by LIMRA shows workers in private sector and nonprofits alike will save only enough in their defined contribution (DC) plans to receive the full company match.

Nearly half of American workers believe they are not saving enough for retirement, and four in 10 working households have less than $25,000 saved for retirement, LIMRA says. Using a stretch match strategy— which would require an employee to save a higher percentage to attain the full company match—can be a way for plan sponsors to increase plan participants’ savings behavior.  

Fewer than half of workers surveyed (four in 10, in both private sector and nonprofit industries) consider themselves “savers.” Of those with access to a DC plan, 20% are not making any contributions at all to the plan. Those in the private sector who are not contributing are more likely to say they cannot afford to defer any salary or to have competing savings priorities, compared with nonprofit employees (67% vs 53%).

Institute researchers found more than one-third of Millennial workers in both the nonprofit and private sectors are saving 10% or more (34% and 35% respectively). Only 27% of Boomers and 28% of Gen X not-for-profit workers are saving at that rate. In the private sector, Boomers and Gen X workers save a bit more than their Millennial counterparts: 36% of Boomers and 35% of Gen X workers are saving 10% or more in their retirement plans.

Even with robust saving habits, pre-retirees surveyed have no plan on how they will withdraw the assets from their DC plans once they retire. Just one-third have calculated their savings and expenses in retirement. The study found nearly half of pre-retirees said they plan to withdraw 9% or more of their assets each year in retirement. Most financial experts recommend drawing no more than 4% a year and in low-interest rate environments, maybe less.

“With longevity at an all-time high, retirement can last more than three decades,” says Ericson. “Understanding how to safely draw down savings becomes critically important for retirees. Not-for-profit workers are more likely to have a pension income along with their DC plan, but most for-profit workers will not have one.”

Ericson says professional advice can be helpful to both types of workers. The key is to understand the unique challenges and obstacles each group is facing.