Why your 401(k) matching contribution matters
Today, 77% of employers offer matching contributions through their 401(k) retirement plans.1 And for good reason—the employer match generally encourages employees to save more.
- 53% of employees say an employer match was the reason they started saving for retirement.2
- 71% say taking full advantage of the match was the most motivating factor to increasing their 401(k) contributions.3
Employees obviously see the value of not leaving money on the table.
Pay raise vs 401(k) match increase?
If you think you can’t add or enhance your organization’s 401(k) match while your company’s under a salary freeze—think again. Most employees see the match as a meaningful benefit.
- 74% of employees say they’d take a company match over a comparable salary increase if given the choice.4
- 84% of participants feel that employer match contributions are the most effective way to get employees to save for retirement.4
How much should you spend on matching contributions?
The amount you match depends on your organization’s budget. Just remember that a match contributes to the overall savings rate and can help more workers reach better outcomes.
In the 2018 plan year, an employer contribution of an average of 5.1% pay lifted total average contribution (participant plus employer) over 12%.5 This held true across various match formulas. The key was for the employer to contribute at least 5.1% of pay.
Whatever you do, a matching contribution matters. If you’ve been thinking about adding or increasing your employer match, talk with your financial professional or third party administer if you work with one. Or give us a call. We want to help.
1 Plansponsor Defined Contribution Survey, 2018.
2 The Cerulli Report | U.S. Evolution of the Retirement Investor 2019.
3 The Cerulli Report | U.S. Evolution of the Retirement Investor 2018.
4 Principal Retirement Readiness and Financial Wellness Study, August 2019.
5 PSCA's 61st Annual Survey of Profit Sharing and 401(k) Plans, December 2018.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
Insurance products and plan administrative services provided through Principal Life Insurance Co., a member of the Principal Financial Group®, Des Moines, Iowa 50392.
Principal, Principal and symbol design and Principal Financial Group are trademarks and service marks of Principal Financial Services, Inc., a member of the Principal Financial Group.