Match Optimization

Many employers include a match as part of their retirement plan. An employer match has the power to greatly increase the value of an employer-sponsored retirement savings account, while also providing a greater incentive for employees to contribute to the plan. Employers may be able to optimize the match by “stretching” it.

Many plan sponsors are initially reluctant to implement stretching features out of concern that they may subject themselves to a dramatic increase in company match costs. However, thoughtfully implemented, match stretching features do not have to equate to higher matching costs.

A good example of stretching would be, rather than matching 100% of a participant’s savings of up to 3% of pay, a plan sponsor matches 50% of savings up to 6% of pay. As shown in the chart below, a simple policy change like this can lead to a higher deferral rate for participants without potentially bearing any additional costs to the plan.

Match Optimization

In the above example¹, the overall match costs to the plan sponsor are the same, but the re-engineered matching formula applies those matching dollars in a more thoughtful manner.

 


¹This is a hypothetical example and is not representative of any retirement plan. Your situation may vary. For further information about match optimization stretching features, please contact us.


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