Practice Management

To Match or Not to Match

By Tom Foster

As part of the process to help employers design the most effective retirement savings plans possible, financial advisors typically discuss matching employee contributions.  But do matching contributions really encourage employees to save?

Approximately half or 49.4 percent of retirement plan sponsors made matching contributions in 2015, the latest figures available from the PSCA’s 59th Annual Survey Report1. The larger the company, the more likely it is for plan participants to receive a match, the PSCA reports. The average match for all companies was 5.7 percent of pay.

No doubt, plans that provided a match enjoy higher participation rates than plans that do not match.  Participation rates as reported by the PSCA ranged from 64.6 percent for 401(k) plans that did not match to 83.1 percent for plans that provided a fixed match.1

Meanwhile, the second most popular employee benefit that Americans would like to receive from their employer is better 401(k) matches, according to the 2015 MassMutual Generations@Work Study.2 Matches were particularly popular with Generation Xers (47 percent) and Boomers (43 percent) but less so with Millennials (35 percent).

Both men (50 percent) and women (44 percent) said more generous matches were their most desired benefit, right after more vacation time. Apparently, most of us prefer time over money.

But other incentives – including tweaking how the match is made – may actually drive both participation and the amount of contributions to higher levels. Retirement plan design features such as automatic enrollment or other behavioral financial incentives actually can be more effective, according to Brigitte C. Madrian, professor at the Harvard Kennedy School of Government.3

A stretch match can be particularly impactful, Madrian points out.  For instance, a typical formula is for a company to match 50 percent of the first six percent of an employee’s salary deferred to their 401(k). But stretching the formula to match 25 percent of the first 12 percent of salary incents employees to save more. And there is no additional cost to the company.

Of course, implementing such a strategy as part of an existing plan when employees already receive a match on a lower contribution percentage can become a sensitive issue. It takes an employer that is truly dedicated to promoting higher savings levels to bite this bullet. The concept of a stretch match is easier to sell to both the employer and the employees in instances when firms have historically not provided a match.

Another incentive that is gaining traction is automatically enrolling employees in the company’s retirement savings plan. The PSCA reports that 57.7 percent of all defined contribution retirement plans automatically enroll employees.

Automatic enrollment takes advantage of inertia, a behavioral finance trait shared by most of us. Instead of fighting inertia by trying to get employees to voluntarily save for retirement, automatic enrollment takes advantage of the trait by making employees take action to stop saving. It’s why plans that use auto enrollment report an average of 88.6 percent plan participation.

The downside to auto enrollment is that many employers start deferrals too low and don’t increase them sufficiently. Combining auto enrollment and a stretch match, as Professor Madrian points advises, can overcome this obstacle and actually accelerate retirement savings. Automatically escalating deferrals until they reach a meaningful savings rate – say at least 10 percent – is yet another solution and can be combined with both matches and automatic enrollment.

So matches are an effective way to encourage participation, especially when they get a turbo boost from other plan design features. And MassMutual’s research shows that employees appreciate matches as well, right after vacation time.


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E. Thomas Foster Jr. is Assistant Vice President, Strategic Relationships, for Massachusetts Mutual Life Insurance Co. (MassMutual).


159th Annual Survey Report, Plan Sponsor Council of America, 2016,

22015 MassMutual Generations@Work Study,

3401(k) Match: 'Thresholds' Drive Participation More than Rates,