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The $24 Billion Workers Are Leaving on the Table

Why are employees passing up so much free 401(k) money?

By Richard Eisenberg

Odds are, you’ve read more than one article saying that if you can contribute to a 401(k) plan, you should invest enough to get your employer’s match. Turns out, many employees aren’t.

In fact, according to a study by the investment advisory firm Financial Engines of the savings records of 4.4 million retirement plan participants at 553 companies, one in four employees aren’t saving enough to receive their full employer match (a match is the free money an employer kicks in when an employee contributes to the plan).

A Wakeup Call for Employees?

“We hope this study is a wakeup call to people,” says Greg Stein, director of technology at Financial Engines, whose company offers advice to employees with 401(k) plans. Stein calls employer matches “one of the best deals” that employer-sponsored plans offer employees. “This is real money that could make a significant difference to the quality of their retirement,” he notes.

(MORE: Put Your 401(k) to the Test)

According to the Financial Engines study, Missing Out: How Much Employer 401(k) Matching Contributions Do Employees Leave on the Table?, U.S. employees are passing up roughly $24 billion annually in employer matching contributions by not saving enough to get their full employer 401(k) match. That's $1,336 per person, which would amount to $42,855 over 20 years. About a dozen employees in the survey missed out on more than $20,000 in matching money in 2014.

And the study says that employees surveyed left more employer matching contributions unclaimed ($1.4 billion) than claimed ($1 billion).

It’s not just younger employees who are missing out. Financial Engines found that 23 percent of 50-year-olds in its study and 17 percent of 60-year-olds aren’t getting the full match.

(MORE: The No. 1 Flaw in Big 401(k) Plans)

Why So Many Pass Up Matches

It’s a mistake to assume, however, that these employees are idiots for not grabbing their employers’ full match. Many, undoubtedly, believe they can’t afford to lock away all the money necessary to get the maximum match. “Saving is difficult and takes discipline,” says Stein. “There are millions of competing interests for our money.”

The tax law also somewhat discourages saving significant amounts in a 401(k) because once you make a contribution, you generally can’t get that money until retirement unless you: take out a 401(k) loan (which generally isn’t advisable) or qualify for a hardship withdrawal (which will sock you with a 10 percent tax penalty if you’re younger than 59 ½).

(MORE: Is It Time for a Hands-Off 401(k) Plan?)

Employers set their own matching rules, but according to Vanguard’s 2014 How America Saves survey, the most common match is 50 cents for every dollar an employee kicks in, up to 6 percent of pay. That means if you earn $75,000, you’d need to contribute $4,500 to get the full match. The most common match at large employers is dollar for dollar up to 6 percent of pay, according to the Aon Hewitt consulting firm.


Although it’s smart to try to save 6 percent of annual pay for retirement — some advisers recommend aiming for 10 percent, match or no match — many employees don’t have that kind of discretionary money.

Matches and Auto-Enrollment

And here’s a match game that would’ve surprised even Gene Rayburn: employers with automatic-enrollment 401(k) plans offer less generous matches, on average, than those that require employees to decide whether to contribute.

A 2014 Center for Retirement Research at Boston College analysis of 1,200 401(k) plans found that the auto-enroll versions had average matching rates of 3.2 percent of pay, while the ones that didn’t automatically enroll new employees matched 3.5 percent. MarketWatch’s Anne Tergesen, writing about this study, explained this by noting that auto-enrollment tends to increase an employer’s total compensation costs, so the firms trim their matches accordingly.

How to Get More Workers to Take Matches

To help ensure more employees get more of their employers’ matches, Financial Engines recommends that 401(k) sponsors enroll participants automatically at a default rate that guarantees a full match or include an auto-escalation feature that would lead to workers’ achieving the full match over time.

But wouldn’t that lead to some employees inadvertently putting away more than they can really afford? Financial Engines spokesperson Mike Jurs concedes this could happen but adds that “most people would find out within their first paycheck and could easily make a change.”

Another thing more employers could do that would encourage employees to get their employers’ matches, says an upcoming report by a team of researchers including Gopi Shah Goda at Stanford University, is showing them how that match would translate into income in retirement.

Jurs agrees: “Putting things in dollar terms for employees is a powerful way for them to think about retirement.”

Photograph of Richard Eisenberg
Richard Eisenberg is the former Senior Web Editor of the Money & Security and Work & Purpose channels of Next Avenue and former Managing Editor for the site. He is the author of "How to Avoid a Mid-Life Financial Crisis" and has been a personal finance editor at Money, Yahoo, Good Housekeeping, and CBS MoneyWatch. Read More
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