Americans are saving more, just not in their
employer-sponsored retirement plans, according to a new analysis by retirement market researcher Hearts &
Wallets. Average annual household savings increased almost a full
percentage point to 5.5 percent last year, up from 4.6 percent in 2013, based
on Hearts & Wallets' annual survey of 5,500 U.S. households. But the
percentage of household savings that went into employer-sponsored retirements
plans like 401(k)s fell 7 percentage points to 22 percent in 2014, and
households participating in employer-sponsored plans declined to 56 percent
last year from 60 percent in 2013.
Adopting automatic enrollment, as many companies have, can
increase employee participation. But employers can also help improve
participation and contribution levels in retirement plans by offering matching
contributions. The analysis, based on 2014 data and released Tuesday, found
that an employer match can double the annual retirement plan contribution among
workers who said that getting the employer match was very important to them. In
that group, the power of the employer match was strongest among savers earning
$48,000 to $95,999: they increased their average retirement plan contribution
by 2.5 times because of an employer match, according to Hearts & Wallets.
Only 10 percent of the people surveyed were eligible for a
retirement plan that offered a matching employer contribution of more than 6
percent of an employee's salary, a third said their employer match was 4
to 6 percent, roughly another third said their match was 3 percent, and 24
percent said their employer offered no match.
The size of your matching contribution often depends on the
size of your employer. The average retirement plan match is 6 percent of an
employee's salary among large employers, said Alison Borland, senior vice
president of retirement strategy and solutions at benefits consulting firm Aon
Hewitt.
Even if the employer match is increasing, workers are still
leaving money on the table. Financial Engines, an investment advisory firm,
estimates that about a quarter of retirement plan participants are missing
out on receiving the full company match. That translates into average loss of
$1,336 per person each year or an estimated $24 billion of missed retirement
savings in total.
However, the number of people contributing to their retirement
plans to earn at least the match is gradually rising. Nearly three-quarters of
plan participants in 2014 were saving at a level that will allow them to
receive the full benefit of the employer match, according to Aon Hewitt. That
was 1 percentage point higher than in 2013. And among people who are currently
saving below the employer match, nearly 30 percent are enrolled in an automatic
escalation program that will gradually increase their savings rates to qualify
for the full employer contribution.
The employer match isn't the only way to increase the use of
retirement plans. Automatically enrolling workers in these plans can also boost
participation. The share of employers with more than 80 percent participation
rates in defined contribution plans increased from 50 percent in 2010 to 64
percent in 2014 as the share of companies offering automatic enrollment rose
from 57 percent to 68 percent, according to study by Tower Watson.
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