Companies can encourage employees to save more in 401(k) plans by spreading the company match over a bigger portion of employees' contributions, according to a recent analysis by Principal Financial Group.
Principal's examination of its contracts for 6,560 defined-contribution plans found that when companies match 100% of the first 2% of pay saved, employees on average contribute 5.3% of their pay. Companies that match 50% of up to 4% of pay saw an average contribution rate of 5.6%, while those matching 25% of up to 8% of pay had an average contribution of 7% of pay.
"The employer match is a great motivator in spurring better retirement savings behavior," says Barrie Christman, vice president of individual investor services at Principal. "By stretching the match formula, the savings rate improves at no additional cost to the plan sponsor."
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