NAPA Net - Polling Places 031519 |
Has the Stretch Match Been Oversold?
With a stretch match, rather than offering a 50 cent match on every dollar contributed to a 401(k) plan up to 5% of a participant’s salary, a sponsor might offer 25 cents on every dollar up to 10% of salary for the same cost. The idea is, of course, that participants – whose rates have traditionally clustered around the rate of employer match - will be inclined to “stretch” their own rate of savings to the higher level in order to get the full match.
However, a recent report from Vanguard, based on a study of some 328 voluntary enrollment plans suggest that a stretch match may not fare as well. In fact, plans with a 100% match had participation rates that were 20% to more than two times higher than the plans that stretch the same match value to a higher threshold.
Now, in fairness, the study wasn’t exactly apples to apples – there are lots of differences in plans, workforces, income levels, and geography that could have contributed to the study outcomes. It does, however, raise the question; are participants “wise” to the impact of the match scaling – and if it really is an effective way to increase deferrals.
However, a recent report from Vanguard, based on a study of some 328 voluntary enrollment plans suggest that a stretch match may not fare as well. In fact, plans with a 100% match had participation rates that were 20% to more than two times higher than the plans that stretch the same match value to a higher threshold.
Now, in fairness, the study wasn’t exactly apples to apples – there are lots of differences in plans, workforces, income levels, and geography that could have contributed to the study outcomes. It does, however, raise the question; are participants “wise” to the impact of the match scaling – and if it really is an effective way to increase deferrals.