Stretching the match. One of the most important concepts in the Ideal Plan is the stretch match for numerous reasons.
One of the most important concepts in the Ideal Plan is the stretch match for numerous reasons. At a TPSU program held at the Universities of Shady Grove in Maryland, an HR manager of a small not for profit became an instant convert and plans to institute it immediately assuming, of course, she can get buy-in from senior management and the employees.
Stretching the match means keeping the same absolute dollar amount that a company contributes while forcing plan participants to defer more to get the full benefit. For example, instead of 50% of the first 6% or 3% of pay, a stretch match would be 25% of the first 12%. Participants generally save to the match – it’s an easy way to determine deferral rates and a signal, employees think, from their company about how much they should be saving. Another best practice is to convert the percentages into dollar amounts – it’s more tangible for an employee making $50,000 to know that 25% of 12% really means $1500. They don’t relate to percentages.
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So the HR manager at the not-for-profit intends to adopt it at her company as soon as she can. Her company matches 100% of 2% – she intends to start slowly at 50% of 4%. A real stretch would be 25% of 8%. The current match seems low but it’s really not much different than the typical 3% of pay – it’s all about framing.
Resistance? Our TPSU student thinks that she can get buy-in from senior management, which is critical, but employees may be more resistant because they will get less money initially. Her strategy will be to get workers to think long term.
The HR manager had never thought about a stretch match because, “I inherited the plan and went with it,” which is typical as retirement is just one of many hats she wears and it’s hard to keep up with new trends. TPSU programs bring plan sponsors the latest and greatest thinking like stretch matches as well as peer to peer engagement to learn what other companies like yours are doing. How are you supposed to figure it out on your own?
