Employee Benefits – Employer Matching Contributions Are on the Rise. After going on hiatus following the financial crisis in 2008, employer matching contributions are making a comeback, and they’re on the rise. That’s good news. It means many companies are matching employee deferrals to their defined contribution (DC) plan accounts at higher rates to help boost retirement savings.
In its annual “How America Saves” study for 2017, Vanguard found that 401(k) matching contributions are on pace to hit 4.7% of salaries this year. That’s a significant uptick from 3.9% in 2015, and way up from 3% in 2009, when the financial crisis was hitting a crescendo.
Many companies slashed retirement plan matching contributions to save money when the bottom fell out of the financial markets in 2008-2009. Today, as their financial situations stabilize, employers are increasing their 401(k) match to help workers save more for retirement, foster employee loyalty and attract new talent.
American workers have come to rely increasingly on their own savings for retirement, typically in an employer-sponsored DC plan. In addition, many organizations are phasing out or freezing employer-funded defined benefit (DB) pension plans. As such, employer matching contributions have become a “bridge” to help fill gaps in employees’ retirement savings.
In today’s tight labor market, offering generous employee benefits – 401(k) match can be an appealing employee benefit for prospective employees, as well as boost satisfaction and retention among existing ones. And with many older employees choosing to work longer, a healthier match can also help beef up their savings and create more financial security when they do retire.
Does your organization offer a retirement plan match? Is it competitive? It might be a good time to take a look at your match and benchmark it against industry peers. If it’s not up to snuff, and your organization has the means to support it, consider increasing the match. Your current employees will appreciate it, and it’ll make your benefits package more attractive to prospective new hires.
There is no standard formula, but many employers choose to offer a match of $0.50 on every $1.00, or dollar-for-dollar, up to between 3% and 6% of salary. Again, there is no “right” answer, but obviously, the more generous the match, the more attractive it is to current and potential employees, and the more it helps to encourage retirement readiness.
Higher matching contributions are a good sign that, at least for the moment, workers can rely on their employers to help them be better prepared for retirement. Employee benefits mean happier, more productive employees, and increased loyalty in a strong job market. That’s good news for employers who want to attract and retain top talent and continue to help their workforce save more for their post-career years.
