Employer Matching Contributions Boost 401k Contributions
Employer matching contributions are at an all-time high. However, a decent number of Americans aren’t taking advantage of this opportunity to receive “free money” in the form of employer matching contributions to save for retirement. Here are some ideas on how employers can encourage retirement plan participants to boost their savings and get the full benefit from employer matching contributions.
Here’s the reality: 75% of companies that offer a 401k retirement plan offer some kind of employer matching contributions. However, according to The Motley Fool, 20% of people don’t take full advantage of those employer matching contributions. However, employer matching contributions are currently at record highs. According to the Plan Sponsor Council of America (PSCA), the average employer matching contribution in a 401k is now 5.1% of employee pay — the highest figure PSCA has ever recorded. Since the average annual salary in America is $46,641 a year, that 5.1% results in an extra $2,379 annual in savings for retirement plan participants who save enough to get their full employer matching contributions.
Employees might believe that they “can’t afford” to defer enough in their retirement plan account to take full advantage of employer matching contributions. However, the truth is, they can’t afford not to. Here are some tips from The Motley Fool article on how you can help your employees find additional cash for retirement:
- Challenge employees to see if they can cut one major expense: The Motley Fool aptly points out that telling your employees to reduce their “latte factor” isn’t going to cut it when it comes to finding extra money to fund their 401k to get employer matching contributions. If the average employee saves $3 a day by skipping their usual cup of coffee, that only adds up to $1,100 a year in extra cash — well short of the $2,379 mentioned above. Instead, suggest that employees cut one larger expense from their budget. This could be reducing their rent, cutting out an uber-expensive cable package, or getting rid of a car they’re paying for but don’t necessarily need. According to The Motley Fool, significant changes like these can free up $200 a month or more, providing adequate funds to help employees set aside more to take full advantage of employer matching contributions.
- Suggest employees consider saving their bonus or raise for retirement: Employees who are slated to receive a raise or bonus in 2019 have a ready-made opportunity to save additional funds for retirement. Encourage them to direct the extra money toward their retirement plan instead so they won’t be tempted to spend it and so they can get closer to the contribution amount they need to capture employer matching contributions.
- Encourage employees to find ways to make extra money: Whether it be a side hustle, selling unused items, having a garage sale or some other means, employees who can make extra cash have an excellent opportunity to beef up their retirement savings enough to get their employer matching contributions. In fact, as The Motley Fool notes, 14% of Americans have a side hustle for the sole purpose of funding a retirement plan.
With employer matching contributions at more generous levels than ever, employees should take full advantage of them to increase their retirement savings. Employers can help workers “meet the match” by imparting these helpful tips to save more so workers can benefit from the “free money” retirement savings they get with employer matching contributions.
By Robyn Kurdek
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