SURVEY SAYS: How strong an incentive to participate is the company match?

Last week I asked NewsDash readers, 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 responding readers said it is the number one 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 for employees to participate in their employer’s retirement plan, and 21% indicated that having a company match definitely helps incent 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 incentive 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 is a stronger incentive 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 vesting schedule as a stronger incentive to participate, and 5% selected the investment choices in the plan.  

“Other” responses (12%) included: 

  • income deferral 
  • pre-tax payroll deduction 
  • Extent to which the employer urges the employee to save 
  • Tax savings 
  • Employees Understanding of what is going on. 
  • automatic enrollment and escalating contribution rates 
  • Being Auto Enrolled 
  • On-on-one meetings with HR or financial advisors 
  • weigh the savings decision against a need for health insurance, or to simply pay the rent or put food on the table. 
  • Automatic enrollment features  


Among the verbatim comments, one particularly interesting: “It is an incentive for some, but not strong. Before auto-enrollment, I found informal employee peer pressure to be most influential factor. We had a consistent 95-98% participation rate in a pre-401k (ie. 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.’”  


We recently had to safe habor our plan which signifcantly increased our match. Participation did not increase but those who were participating increased their withholding.  

As many will comment, it’s not until they are close to retirement that many people even begin to consider how much to save towards retirement. The company match certainly incents many to save at the minimum level to get it but those of us in the industry know most participants will need much more than that to retire with.  

Critical, particulary with young employees and those newly hired who are not vested as this is their only “sure thing” accumulating toward retirement.

Verbatim (cont.)   

We have a 2 year wait before an employee can receive our very generous match. As a result, only 25% of new hires voluntarily defer into our retirement plan during the initial 2 years. Comments I hear are: I can't afford to contribute, I don't want to pay the record-keeping fee (flat fee), I can do better by saving my money in the bank. We have 95% participation after employees are match eligible. 


When we had a company match, we still had some people who didn't want to participate. I couldn't believe that anyone would no to free money. The match was a big selling point to most employees, at any age. 


I think the power of the match varies with how much it is. Research is showing that a more generous matching percentage and higher deferral percentage matched make for a stronger incentive to participate and higher average deferrals. 


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


Exactly half our participants balance their deferrals with the maximum company match; I see that statistic as a "number one incentive". 21% 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. 


It's hard to reject "free" money. So the incentive is strong, but not the #1 reason for saving for retirement. 


In an EE meeting I ended up spending 30 to 40 minutes trying to explain that there was no underlying benefit to their employer to offer a 401(k) let alone offer a match. I'm not sure they ever really believed me that the employer wasn't using this to get them somehow. So I would say there is some level of trust of the employer needed to get the employees to join. 


Everyone wants free money. It is just getting participants to understand what they are missing. I have several young low wage earners in my family that work for companies that offer a match. None of them participated in their 401(k) plans that matched until I talked them. Once they realized what they were giving up they all joined the plan at a rate high enough to maximize on the match. All their plans had a 100% match up to an amount no more than 6%. If you changed that to 50% up to 12% they would never have been able to put in 12% and the discussion would have been more difficult. 


The grief other's give you when they realize you left "free" money on the table! 


We recently purchased another company which has very low participation in the plan. The #1 reason, no match. For them the match is a very strong incentive to participate! 


In 2006 our company adopted safe harbor status. All employees (over 21, after 1 yr) receive a guaranteed 3% contribution. They also receive a profit sharing contribution voted on each year. On top of this, employees may contribute 100% of their earnings up to the limits ($17,000 or $22,500). Employees are contributing more 401K dollars now than they were prior to 2006 when the company matched up to 6% . 


hello, it's free money and the power of compounding. What a concept! 


A match makes selling participation much easier, particularly with those who do have above average salaries. 


I have evidence that it is an incentive becuase when it was taken away at our company 3 years ago large numbers of people dropped out or decreased to a very low % rate. A much smaller match was eventually reinstated but participation did not come back very much. Maybe in highly paid professional companies match is not a big deal because they get other/better perks but in the real world it matters!

Verbatim (cont.)  

I think the #1 incentive is the employee's salary. One of our union groups has the highest participation rate out of others in our union shop and they specifically do not receive a match at all whereas others do. This unmatched group also makes much more in earnings due to their starting rate and the abundance of overtime hours allowed. Second in my mind would be the employee's desire to save and finally the vesting schedule. 


As I see many of the NHCEs merely contribute the amount that will get them the maximum match, I believe it is critical. For those that are contributing more than the amount needed to maximize the match, they seem to fall in the well compensated and/or those nearing normal retirement. 


I think it truly depends on the perspective of the participant --- especially for newer employees, our plan has a 5-year vesting schedule, and even though we match up to 6% of the amount, if someone is just starting, they may not be looking at the "extra" that's there. 


We find education meetings are the best method to get increased participation, in cases of acquisitions we have seen an increase in participation in our new plan as compared to the old companies plan simply becasue we talk it up during the new employee benefit meetings, even when the old plan had a better match than our plan. Education and awareness is the key. 


If there is NO match, then employees have an easy (yet fallacious) excuse not to participate. 


I've found that match doesn't really have a siginificant affect on getting people to participate so much as it does on the amount they contribute, The higher the match formula, the higher the participant's deferral rate is. 


I'm not sure the size of the match is as important as having some sort of match. A plan without a match would definitely hurt participation, but a large match doesn't seem to be a strong incentive for employees to participate. 


My company has yet to restore the match but my contribution remains the same. I'm not sure if this is due to my retirement background or my age or both. Just wish I could add more. 


Not only does a company match provide a strong incentive to participate in an employer's retirement plan but also depending on the amount of the employer match may increase the employee's contribution over what they might normally contribute 


Communication and education are key factors as well. 


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 how rich a match is offered. There is a very narrow group in the middle who may be influenced to contribute by a match. 


Anyone who does not take advantage of a company match by at least contributing enough to get the full match in their company's retirement plan is crazy. The match is free money and is a guaranteed gain on money you put into the plan regardless of how the stock market is doing. 


if my company did not match, then I would contribute to a roth IRA before 401k 


For those who are paying attention, it is a strong incentive. Unfortunately a substantial minority of employees seem to ignore all retirement plan related communications and do not sign up, even though there is 150% match available.

Verbatim (cont.)  

It is an incentive for some, but not strong. Before auto-enrollment, I found informal employee peer pressure to be most influential factor. We had a consistent 95-98% participation rate in a pre-401k (ie. 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". 


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). For higher paid employees and those closer to retirement (on a relative basis) it is less of a motivating factor. 


autoenrollment is best! matches help with nondiscrimination. 


The company match should be the number one incentive because even if the match is 50%, that's a 50% return on you investment on day one. Unfortunately, employee education meetings do not stress this point enough. 


It depends on the employee/participant base, and the match. A weak match will not incent employees to save. A stronger match would be more incentive to save, depending on the participant salary base 


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. 


While not really an incentive, the best thing that happened to our plan was auto-enrollment. Perhaps they are completely unengaged and/or don't notice they are participating, but they are participating nonetheless. 


you can lead a horse to drink, but you can't make it drink. The same is true with retirement saving. If the employee values the opportuinty then she will act, if not they wont. 


I think it depends on the match formula. My company matches 100% on the first 5% deferred, every employee participates. 


The "ant" will always save and the "grasshopper" will always rather dance. Nevertheless, a match is no longer an incentive - it's an expectation. 


I wish more people would take advantage of what I like to call 'free money', but I still think there are many, many people out there (manufacturing) that do not understand the need to save for retirement. 


In my opinion if an employee is on the fence about participating the match definitely helps. It also helps employees increase their contribution percentage to maximize the match. However, if an employee is not going to participate and it is stuck in his or her mind then nothing will probably get them to enter the plan. 


I would not pass up free money from my employer, but for some reason, some people do!