The News Bee

Study: $24B in company matches left behind

Study: $24B in company matches left behind

Over the past decade, employers have increased efforts to enroll workers in retirement savings plans. And they’ve paid off. Participation rates are at all-time highs with nearly eight in 10 employees taking advantage of defined contribution plans like 401(k)s when they have access to them, according to estimates by Aon Hewitt.465489357

Persuading workers to max out their savings in those plans, though, has been tougher. By 2013, the “vast majority (of employers) offered some type of employer-matching contribution” to encourage workers to save more, according to a recent Aon Hewitt analysis of nearly 150 plans with 3.5 million eligible employees. But even when employers offer matches, employees don’t always take advantage of them. A new report released Tuesday by the independent investment advisory firm Financial Engines found that one in four employees is missing out on receiving the full company match by not saving enough — leaving an average of $1,336 on the table each year. Or an estimated $24 billion altogether.

“The match is one of the best deals employer plans offer,” said Greg Stein, director of financial technology at Financial Engines, which examined the savings records of 4.4 million retirement plan participants at 553 companies. “It’s an instant return on the retirement plan and demonstrates why it’s so important to communicate the benefit of participating fully, and how much money is at stake.” As retirement plan researchers can tell you, unclaimed employer match money is not a new phenomenon. But what’s interesting is that one of the very mechanisms for encouraging participation in retirement savings plans may have inadvertently exacerbated the problem.

By the end of 2013, about 65 percent of companies reported having auto-enrollment programs, in which employees are automatically defaulted into a plan with an option to opt out, a feature that became increasingly widespread after passage of the Pension Protection Act in 2006, which provided safeguards for employers that adopted it. (Before the law passed, an estimated 20 percent of employers had retirement plans with auto enrollment; the number has more than tripled since.) But the default contribution rate for most of those plans remains at 3 percent, the amount many companies adopted when they first added the feature—well below the 10 to 15 percent of annual income that advisors often recommend savers set aside for retirement.