Employer matching can encourage how much money participants invest in their 401(k) retirement accounts, even when the employer’s total contribution remains the same, finds a new Principal Financial Group analysis.
“The data tells us that while the employer contribution stays at 2 percent, the higher target deferral in the match formula is spurring participants to save more,” says Barrie Christman, vice president of individual investor services at The Principal. “This is significant because it shows that employers can incent better savings behavior without having to increase their costs.”
According to the analysis, changing the matching contribution to a higher level also does not discourage participation. In a sample group of contributing participants who have an employer match, 43 percent of those participants contribute 6-10 percent while 26 percent contribute 11-15 percent.
“We believe most retirement plan participants should be saving in the 11-15 percent range -including employer match – in order to have a sufficient income at retirement,” Christman says.
Seventy-five percent of the sample participants are deferring up to their employers’ matching contribution.
“This statistic clearly illustrates how powerful the match can be in promoting better savings behavior,” Christman says. “Employees don’t want to ‘leave money on the table.’”