Employer Match Powerful Deferral Incentive

The Principal analyzed 6,560 contracts involving its plans that include a match formula.  In each of three scenarios studied with the same match, the participant contribution increases as the matching formula targets higher contributions. 

“The data tells us that while the employer contribution stays at 2%, the higher target deferral in the match formula is spurring participants to save more,” said Barrie Christman, vice president of individual investor services at The Principal,in a news release. “This is significant because it shows that employers can incent better savings behavior without having to increase their costs.”

In addition, the analysis shows that stretching the matching contribution to a higher level does not negatively impact participation rates.

Further analysis of a sample group of participants making a contribution and having an employer match shows that 43% of those participants fall within the 6% -10% contribution range, and 26% are contributing 11%-15%.  Of that sample group, 75% are deferring up to their employers’ matching contribution.