The Recruiting News
(December 2, 2010) Analysis shows participants contribute more when employers stretch target through matching contributions
The design of the employer match can be a powerful motivator in boosting the amount of money participants put into their 401(k) retirement accounts even when the employer's total contribution doesn't change, according to new analysis from the Principal Financial Group.
The chart1 below shows three different employer match formulas with the same employer contribution. In each scenario, the participant contribution increases as the matching formula targets higher contributions.
"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," said 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."
In addition, the analysis shows that stretching the matching contribution to a higher level does not negatively impact participation rates.
Further analysis of a sample group of participants making a contribution and having an employer match shows that 43 percent of those participants fall within the 6-10 percent contribution range and 26 percent are contributing 11-15 percent.3 "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," said Christman.
Of that sample group, 75 percent are deferring up to their employers' matching contribution.
"This statistic clearly illustrates how powerful the match can be in promoting better savings behavior," said Christman. "Employees don't want to 'leave money on the table.'"
For more news and insights from The Principal, connect with us on Twitter at http://twitter.com/ThePrincipal.
About the Principal Financial Group
1 Base of 6,560 contracts that show a stated match formula.
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