Stretching the Match
As summer is winding down, now is actually a great time for you to do a mid-year check on your organization’s plan design to see how it is performing among your employees. Are they participating in the plan? Are they increasing their contributions every year? One way to adjust your plan design to say “yes” to both of those questions is by “stretching the match.” This is a high-impact, low-cost tool that can boost contribution rates among your organization.
What is “Stretching the Match”?
Stretching the match means that you are increasing the minimum contribution percentage needed to receive the maximum employee match without costing your company more money. For instance, a traditional match will be 100% up to 3%, but with a stretched match, it would be 50% up to 6%. Both cost the exact same amount to the employer, while still increasing the minimum percentage of contribution, incentivizing the employees to put more money into their retirement accounts.
Why Does It Work?
People generally save what’s needed in order to get the full match. If an employer has a minimum of 3%, the employees may believe that that’s what they should be saving. Increasing the minimum gently nudges participants to defer more money to their retirement accounts, effectively pushing them to be ready for retirement and accrue long term wealth accumulation.
Communicating with Employees
Positively communicating this change among your employees is crucial for the stretched match to be effective. Use clear language in your educational materials and offer meetings/sessions to explain the value that saving for retirement brings to the table. While explaining, try to use real-dollar examples to show exactly how much someone could be saving if they contributed or increased those contributions according to the adjusted employer match.
Stretching your company’s contribution match won’t be the end-all-be-all for everyone, but it can be a helpful solution to increase participation in the plan. Some considerations would be the current participation and deferral rates, the current economic state of your employees, and any concerns they may be relaying to you about their finances such as paying off student loans or daycare costs. If you have any questions about adjusting your plan design, be sure to reach out to your retirement advisor.
Sources
https://www.plansponsor.com/behind-the-401k-match-why-employers-offer-it-and-how-to-best-design-it/
https://www.fidelityworkplace.com/s/page-resource?cId=fidelity_building_financial_futures_report
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