What is the true objective of your company match? Is it intended to help your employees save more for retirement? Is it used as a tool to recruit new employees? Do you offer a match to incentivize lower paid employees to save more in order to improve your non-discrimination test? In the end, is your company match achieving its objective?
In 2023, 41% of companies offer a 401k plan offers plan that matches up to 6% of an employee’s salary. When was the last time your match was discussed and evaluated? Have you considered restructuring your match in order to help participants save more for retirement? Reducing corporate expenditures is on the forefront of the minds of many companies in 2023. This has hit particularly hard in the tech sector. According to a 2023 Insider article, there have been 211,000 layoffs in the tech industry. Several other companies like FedEx, J.P. Morgan, and Ford have had to cut cost as well.
According to Securian Financial, the most common match by far among plan sponsors is to match 50% of the first 6% that an employee defers. This means an employer will match 50 cents on the dollar, up to 6% of an employee’s salary. Participants are incentivized to save up to 6% of their pay. However, in order to achieve successful retirement outcomes, most participants should save between 10-15% of their pay. This can be achieved through other Courageous Plan Design features, such as Auto Escalation (which will be discussed in future newsletters). Using the match as a key driver in helping more participants achieve successful retirement outcomes is a topic that committees should discuss regularly.
One restructured formula to incentivize employees to save more would be a 30% match on the first 10% the employee defers into the plan. This structure is great for those companies that currently use the common 50% up to 6% formula since they are already matching 3% of an employees pay. This would encourage participants to target 10% versus a lesser amount like 6%, yet it will not increase the companies additional matching dollars.
Securities offered through MMA Securities LLC (MMA Securities), member FINRA / SIPC, and a federally registered investment advisor. Main Office: 1166 Avenue of the Americas, New York, NY 10036. Phone: (212) 345-5000. Variable insurance products distributed by MMA Securities LLC, CA OK 81142. MMA and MMA Securities are affiliates owned by Marsh & McLennan Companies. MMARetirement.com.
