Average participant contributions to 401(k) plans increase when the company match formula is adjusted — even without changing the actual corporate match, according to a study from Principal Financial Group.
Three match formulas, each with a maximum employer contribution of 2% of pay, were studied, according to a Principal news release about the study. In one formula, the corporate match was 100% for each dollar up to 2% of pay. In another formula, the match was 50% for each dollar up to 4% of pay. And in the third formula, the match was 25% for each dollar up to 8% of pay.
At the 25% match, the average participant contribution was 7% of pay; at the 50% match, it was 5.6% of pay; at 100%, it was 5.3%.
“The data tells us that while the employer contribution stays at 2%, the higher target deferral in the match formula is spurring participants to save more,” Barrie Christman, vice president of individual investor services at Principal, said in a news release.
The study reviewed 6,560 plans that show a stated match formula and for which Principal is record keeper.