Saver’s Match Could Significantly Decrease Wealth Gaps, Morningstar Says

The Saver’s Match could significantly improve the retirement savings of low- and middle-income workers—with single women, Black Americans and Hispanic Americans standing to benefit the most, says a recent Morningstar report.

The Saver’s Match was created as an optional provision of the SECURE 2.0 Act of 2022. It is scheduled to begin in 2027. The program will provide eligible taxpayers a 50% matching contribution from the federal government on the first $2,000 of qualified retirement savings contributions, for a maximum of $1,000 per individual for each tax year.

Single filers with a modified gross income of $20,500 or less would qualify for the full match, with the matching phasing out at a modified gross income of $35,500. Joint filers with a modified gross income of $41,000 or less would qualify for the full match, and the match phases out at $71,000.

Congress is in discussions to extend the 2017 Tax Cuts and Jobs Act, a major priority for President Donald Trump. The Saver’s Match is estimated to cost the federal government $9.3 billion from fiscal year 2023 to 2032, making the program one of many potential trade-offs in budget negotiations. According to research released in March by the Employee Benefit Research Institute, at least 21.9 million workers will qualify for the Saver’s Match (see “The Scramble to Make the Saver’s Match Work”)

To analyze the potential impact of this benefit, Morningstar examined a representative sample of Generation Z and Millennial workers and modeled a 50% match on annual retirement contributions up to $2,000 for each individual saver.

Who Does It Benefit?

When studying the demographics of individuals who will benefit most from the Saver’s Match, Morningstar found that a much larger portion of single women will be eligible for the match than single men or married couples.

Due to the gender wage gap and gender retirement savings gap, it is intuitive that this group would benefit the most, Look says. Among Gen Z and Millennial households, Morningstar found that 43.2% of single women are eligible, compared with 35.3% of men and 29.9% of couples.

A large portion of non-Hispanic Black and Hispanic Americans would also qualify for the match and would, in most cases, experience a larger percentage increase in wealth at retirement than others. Again, VanDerhei and Look say this finding is unsurprising, given the persistent racial wealth gap and disparities in retirement savings that disproportionately affect Black and Hispanic Americans.

Workers in industries with higher rates of retirement income inadequacy, such as agriculture, mining and construction, would also likely see larger increases in wealth at retirement than workers in other industries.

In terms of implementation of the Saver’s Match, VanDerhei argues that it would need to be “integrated into what’s already being provided” and that recordkeepers need to help administer the program in a way suitable to all different plan designs. He says plan sponsors should encourage employees that the benefit is “free money” if they take advantage of it.

“It’s not costing the employers anything; it’s not costing the employees anything to do it, … and [the Saver’s Match] will be there for them as long as they’re eligible,” VanDerhei says.

Employee Communication

Jack VanDerhei, director of retirement studies at Morningstar Retirement, says it is important for plan sponsors to start thinking about how they will educate their eligible employees on the Saver’s Match and how they will go about targeting communications to these individuals.

“From a plan sponsor perspective, … I think they see 2027, and their first thought is, ‘We’ll kick that down the road for a while,’” VanDerhei says. “But they’re going to have to start making plans: not only how they do the overall plumbing on getting the money [from] the government, but also how [they] are going to educate the employees.”

Spencer Look, associate director of retirement studies at Morningstar, says one of the main takeaways from the study is that when eligible participants increase their saving, the Saver’s Match will have a more significant impact.

The biggest improvements in wealth accumulation occurred in model scenarios in which non-savers started to save to qualify for the match and when active savers saved more, according to the report.

“This indicates that, to maximize the program’s impact, the government and retirement industry should focus on promoting the program to ensure that eligible individuals are aware of the incentives to participate,” the report stated.

Look adds that plan sponsors should include instructions to help workers set up an individual retirement account, because matches could be deposited into an IRA or a defined contribution account in the year after the match is calculated. While many DC plans will accept government matching contributions, setting up an IRA would help workers if they are at a job in the future that does not sponsor a DC plan, according to Morningstar.

“Even if the rollout isn’t perfect, the more [plan sponsors] can start planning early and educate [participants], the bigger the impact the Saver’s Match will have,” Look emphasizes.