Every 401(k) plan sponsor knows the best way to encourage employee contributions is to offer a match, right? But a recent study suggests this might not be the case. James J. Choi (Yale), David Laibson (Harvard) and Brigitte C. Madrian (Harvard) make this startling argument in their paper "$100 Bills on the Sidewalk: Suboptimal Investment in 401k Plans" to be published in The Review of Economics and Statistics.

Can years of "common sense" plan design be swept away as easily as the researchers have discovered this truth? All 401(k) plan sponsors have a fiduciary duty to the beneficiaries of the plan (i.e., the employees). Part of that duty entails keeping abreast of studies like this. Now, no one expects the folks in HR or C-level executives to spend their days reading academic journals. Fortunately, there are plenty of media outlets specializing in fiduciary and plan sponsor news and events they can peruse at their leisure.

This study bears reading. Not only did they find workers ignore the company match, but workers over 59 ½ – who can get this match tax free – might be the worst culprits of all because they should simply know better. Why don't these employees partake of this clearly advantageous offer? The researchers blamed financial illiteracy and procrastination. They then tested their literacy assumption and found that didn't work either.