Matchy Matchy: What's Keeping Americans From Using an Employer Match?

Many job seekers know to look for an "employer match" when reviewing a compensation and benefits package. But aside for looking for one, they might not know how to compare or consider this employer match.  Talking about retirement plans at the beginning of an employment process might seem like discussing choice of nursing homes on a third date. However as plan sponsors know, the choice to offer a match can help employees have a better chance at being retirement ready .  It's also worth focusing on as 20% of Americans are missing the employer match on their retirement plan.

According to Profit Sharing/401k Council of America, more than 75% of all employer sponsored retirement plans include some kind of match. The key details to an employer matching program may vary from employer to employer. The most common matching program deposits a mirror amount of the employee's contribution into their account, up to a certain percentage of the employee's pre-tax salary (usually between 3 and 6%). Employees in a sales role may have much of their compensation from commissions, not a base salary. Those employees may compare the amount an employer contributes to their retirement plan as not a full "match." For example, if a salesperson has a base salary of $50,000 but collects another $50,000 in commissions, a 6% match salary would be $3,000. If the employee was setting aside 6% of their compensation (not salary) per year for retirement that amount would be $6,000. The employer match would be only $3,000 or 50% of what the employee was contributing. Establishing these details early can help employee's consider this match (and plan accordingly).

Misunderstanding vesting may also keep employees from getting the most out of a match. Vesting means the employee can take the matched amount with them if they choose to leave. Most companies have some vesting requirement for an employee to keep the moneys contributed through the matching program. Some plans vest a percentage each year, such as 25 or 33%. Most require a set period of service to the company (usually 3 or 4 years). To avoid confusion, a plan sponsor can increase the transparency of their discussion on vesting with simple examples or statistics on the number of companies in the same industry with similar vesting requirements. Federal law is clear on the fact that an employer can "take back" (or withhold an amount from the retirement account to be transferred) the matched amount if the employee leaves before vesting.

Another reason employees may opt not to take advantage of the match involves job security. From an employee's perspective, why stretch to make the most of a match if the matched amount will vaporize if the employee needs to leave?  According to a recent survey by Willis Towers Watson, 41% of employees list job security as a top reason why employees stay with a company. They also identify statistics that highlight how often employees turnover and why. Employees feel that using a company match is worthwhile if they hear more about the steps your company is taking to improve retention.

After the market meltdown of 2008, some companies tied matching to the profitability of the company. For some, that tie may have confused employees. For others, it may have dampened morale and caused employees to consider jumping ship. Transparency in decision making, according to Willis Towers Watson, is a major driver in employee retention. Adding transparency to decisions made about the matching program for your company could help more employee's feel comfortable using it.

Matching can be even more important for employees over 50 who need help catching up on their retirement readiness. While an employee's personal 401(k) contributions are limited to $19,000 (or $25,000 for those over 50), the IRS does not count employer matching contributions towards the limit. Employer matches are counted only towards the maximum saved. Amounts saved via a 401(k) in excess of an employee's salary or $56,000 ($62,000 for those over 50) will face different tax treatment. The employer's match is considered in the total saved. Plan sponsors may want to start by encouraging those employees in that age group to take advantage of the matching program.

‍