Employees Would Trade Lower Pay For Higher Match

By Cyril Tuohy

InsuranceNewsNet

A new survey by Fidelity Investments has found that 43 percent of workers said they would prefer a lower salary in exchange for a higher employer contribution to their company-sponsored 401(k) plans.

The findings are the latest sign of the value that employees place on their employer-sponsored defined contribution plans: Employees are telling employers they would rather have less take-home pay in return for a higher company match.

Doug Fisher, senior vice president of Workplace Investing at Fidelity, said that Fidelity’s data indicate that employer matching contributions represent more than 35 percent of the entire contribution, on average, to an employee’s workplace savings account.

Many employers will contribute 50 percent up to the first 6 percent of an employee’s salary stashed away in a 401(k).

Fidelity’s findings corroborate other surveys that show Americans admit to lacking enough discipline to save the recommended 10 to 15 percent in pretax income advisors say is necessary to secure a comfortable retirement.

Almost all advisors say that employees who don’t set aside their salary minimum to take maximum advantage of the company match is the most egregious mistake workers can make because it means walking away from “free money.”

Even so, many employees aren’t even putting enough aside to take full advantage of the employer match.

Last month, the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund (TIAA-CREF), found that only 72 percent of women contribute enough to receive the full employer match, compared with 82 percent of men.

The TIAA-CREF “2014 Perfect Match Survey” also found that only 64 percent of those earning less than $35,000 a year receive the full company match.

Teresa Hassara, executive vice president of TIAA-CREF's institutional business, said in a news release that the results showed some groups of employees were not taking full advantage of work-sponsored retirement plans.

"When employees don't get the full match that their employers offer, they are essentially walking away from free money," she said.

Taking advantage of the company match is considered crucial because so many employees rely exclusively on the 401(k) to fund their future: 42 percent of the 1,026 employees 25 and older said they are not saving anything outside of their 401(k), the Fidelity survey revealed.

Advisors recommend employees replace 85 percent of net final pay to fund a comfortable retirement. More than half of that income is expected to come from individual retirement savings so the company match plays an important supporting role in meeting that need, according to Fidelity.

Fidelity also said that 79 percent of workplace savings plans offer some type of employer contribution.

Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. Cyril may be reached at [email protected].

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Cyril Tuohy is a writer based in Pennsylvania. He has covered the financial services industry for more than 15 years. He can be reached at [email protected].