According to research from the LIMRA Secure Retirement Institute, workers generally defer up to the company’s match and those companies with a larger match see employees deferring at a higher rate.
The LIMRA (Life Insurance Market Research Association) study showed that only one third of Millennials are saving 10% or more compared to just 27% of Boomers and 28% of Gen X’s in not for profit organizations; employees in for profit companies had a higher rate. The research also indicated that just one third of workers have calculated expenses in retirement and that 50% plan to withdraw 9% annually with most experts recommending 4% withdrawal.
Though research does indicate that you cannot buy participation with the match, the LIMRA research shows that you can affect deferral rates. By stretching the match, deferrals can increase significantly. So if a company is willing to match 50% of an employee’s 6% contribution, then why not stretch that to 25% of 12%? Some push back is that workers comfortable at 6% deferral would be penalized, but the plan has to be designed for the benefit of the majority as well as the company, especially when it comes to the company match which is discretionary.
Another best practice is to put the match in dollar amounts for each worker, which is relatively easy to calculate, rather than use percentages and then follow-up at the end of the year showing participants how much they “left on the table” by not deferring to the match.
All part of the “ideal plan” which includes:
- Auto-enrollment and re-enrollment at 5-6%
- Auto escalation up to 12%
- Stretch match
- Professionally managed investments like target date funds as the default (QDIA or qualified default investment alternative)
Try it – what do you have to lose other than workers unable to retire.
