Typical 401(k) Participant Not Saving Enough to Get the Full Match
Misses Out on $1,300 of “Free Money” Every Year
SUNNYVALE, Calif.--(BUSINESS WIRE)--May 12, 2015--
If your boss offered you a $1,300 bonus on the spot, you’d take it,
right? So why do so many employees pass up the chance to potentially
receive thousands of dollars every year in the form of a 401(k) match?
A new research report, “Missing
Out: How Much Employer 401(k) Matching Contributions do Employees Leave
on the Table?” issued by Financial Engines (NASDAQ:FNGN)
estimates that Americans leave $24 billion in unclaimed 401(k) company
matches on the table each year.
The company examined the saving records of 4.4 million retirement plan
participants at 553 companies, and found that one-in-four employees (25
percent) miss out on receiving the full company 401(k) match by not
saving enough. The typical employee failing to receive the full match
leaves $1,336 of potential “free money” on the table each year, which
equates to an extra 2.4 percent of annual income not received.1
With compounding, this could amount to as much as $42,855 over 20 years.
According to Aon Hewitt, 92 percent of employers with 401(k) plans match
employees’ 401(k) contributions, with the most common scenario being one
dollar for every dollar the employee contributes up to six percent of
the employee’s annual salary. 2
“The 401(k) match is one of the best deals going for employees,
providing an immediate guaranteed return per dollar invested, ”
explained Greg Stein, director, financial technology at Financial
Engines. “Maximizing your available 401(k) match is a key way for
millions of American employees to improve their retirement security.
While many people might feel like they can’t afford to save more, we
hope that this study helps them realize what they are leaving behind.”
Lower-Income and Younger Employees Most Likely to Miss Out
According to the report, lower-income and younger employees were much
more likely than others to miss out on at least part of their employer
matching contribution. For example, 42 percent of plan participants
earning less than $40,000 per year do not take full advantage of the
employer match, compared to just 10 percent of employees earning more
than $100,000 annually. Likewise, employees under age 30 are
approximately twice as likely to miss out on the employer match compared
to employees over the age of 60 (30 percent vs. 16 percent).
However, for many employees, middle-age poses additional savings
challenges. Financial Engines found that the steady decline in employees
missing out on their match is interrupted between the ages 35 and 45,
when the rate of decline flattens out. While the report did not look at
why the savings dip occurs, the costs of raising a family or buying a
home could be making it more difficult for employees to save for
retirement during this time.
Workplace Advisory Services and Match Maximization
According to the report, employees across all ages and income levels who
used Financial Engines advisory services missed out less on their
employer match compared to those not
receiving this help (15 percent versus 26 percent). For example, among
employees earning less than $40,000 who used workplace advisory
services, 25 percent missed out on part of their employer match,
compared to 44 percent among those who did not
use advisory services.
In addition to offering independent advisory services to employees, best
practices among plan sponsors seeking to improve savings rates and the
percentage of employees who receive the full match could include
automatically enrolling employees into the plan at the full-match rate;
or automatically escalating savings rates over time until employees
receive the full match.
“Designing a saver-friendly 401(k) plan and making high-quality,
independent advice available can help employees save more and avert the
growing retirement crisis facing America,” said Stein. “If you have
access to professional financial help, use it. By saving more today and
taking advantage of the full employer match benefit, American employees
can improve their chances of enjoying more secure retirements.”
For employees looking to save more, Financial Engines offers the
following savings tips:
Know your plan. Find out how much your employer will match your
401(k) contributions and strive to save at least enough to get the
Get professional financial help at work. If you have access to
advisory services through your employer, take advantage of that
Ask a financial advisor. Talk with a financial advisor
(preferably a fiduciary, legally required to put their clients’
interests ahead of their own) who can help you identify ways to save
Commit to save more when you can. If you can’t afford to save
enough to get the full match today, increase your savings rate when
you get your next raise and each raise thereafter until you reach your
401(k) contribution limit.
To download a copy of the report, visit http://corp.financialengines.com/docs/Financial-Engines-401k-Match-Report-050615.pdf.
About Financial Engines
Financial Engines is America’s largest independent investment advisor.3
We help people make the most of their retirement assets by providing
professional investment management and advice. Headquartered in
Sunnyvale, CA, Financial Engines was co-founded in 1996 by Nobel
Prize-winning economist Bill Sharpe. Today, we offer retirement help to
more than nine million employees across 600+ companies nationwide
(including 146 of the Fortune 500). Our investment methodology, combined
with powerful online services, dedicated advisor center and personal
attention allow us to help more Americans get on the path to a secure
retirement. Advisory and sub-advisory services provided by Financial
Engines Advisors, L.L.C., a federally registered investment advisor and
wholly-owned subsidiary of Financial Engines, Inc. Financial Engines
does not guarantee future results.
This press release contains forward-looking statements, including
statements regarding the use of professional investment and financial
planning help, which involve risks and uncertainties that could cause
actual results to differ materially. These risks and uncertainties are
outlined in our SEC filings. You are cautioned not to unduly rely on
these forward-looking statements, which speak only as of the date of
this press release. Unless required by law, Financial Engines undertakes
no obligation to publicly revise any forward-looking statement to
reflect circumstances or events after the date of this press release or
to report the occurrence of unanticipated events.
1 To arrive at this number, we restricted our analysis to
employees for whom we have salary data. For employees who failed to
receive the full match, the unutilized match amount, on average, was
2.4% of their annual income.
2 Aon Hewitt 2013 Trends & Experience in Defined Contribution
Plans, an Evolving Retirement Landscape.
3 For independence methodology and ranking, see
InvestmentNews Data Center. (http://data.investmentnews.com/ria/).
Source: Financial Engines
Mike Jurs, 408-498-6590