Why your 401(k) matching contribution matters

Employees who are happy with their company since they offer 401k matching contributions.

Today, 76% 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.

  • 49% of employees say an employer match was the reason they started saving for retirement.2
  • 72% say taking full advantage of the match was the most motivating factor to increasing their 401(k) contributions.2

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.

  • 75% of employees say they’d take a company match over a comparable salary increase if given the choice.3

Plus, employees don’t just want it, they expect it. Sixty percent of workers feel their employer should contribute to their employees’ retirement accounts.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 2015 plan year, an employer contribution of at least 4% of pay lifted total average contribution (participant plus employer) over 10%.5 This held true across various match formulas. The key was for the employer to contribute at least 4% 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.

4 tips to maximize your organization’s 401(k) matching contribution:

1 Plansponsor DC Survey: Plan Benchmarking, January 2017. 

2 The Cerulli Report | U.S. Evolution of the Retirement Investor 2017.

3 Understanding Plan Sponsors’ Perceptions Around Plans, Participants and Partners, American Century Investments, May 2016.

4 Workers and Retirement Programs: What are they thinking? LIMRA, March 2017.

5 Principal, June 2016. Analysis based on 5,092 contracts with a stated match formula and 8,854 contracts with a discretionary or unknown formula. Total contribution percentage includes participant contribution, employer match and any other discretionary employer contribution.

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.

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