"A lot of consultants were touting this, but my gut told me it wouldn't work," said Ms. Young, senior research associate with the Vanguard Center for Investor Research, Malvern, Pa. "We looked for research, but there wasn't any."
The logic of match-stretching works like this: If, for example, a sponsor offers a match of $1 for every dollar contributed by a participant up to 3% of annual salary, a stretched match would be 50 cents for each dollar contributed up to 6% of annual salary. The match cost is the same for the sponsor and the participant would have a higher contribution rate.
However, her research report, published in March, found that contribution rates dropped by 25% to 50% when the match was stretched among plans with voluntary enrollment.
"Any incentive to obtain the full stretched match is more than offset by a reduction in plan participation rates," the report said. "Stretching a match may have unintended consequences for non-highly compensated employees."
The research was based on 401(k) plans that offer voluntary enrollment for participants considered non-highly compensated employees, or people earning less than $120,000 per year.
Auto-enrollment plans were excluded "because it is well known that the defaults chosen in automatic enrollment in plan designs have a strong effect on plan participant behaviors," the report said.
The report used 2016 data, which was the latest available. Vanguard looked at 124 plans that enabled it to compare dollar-for-dollar policies vs. 50 cents-match policies at the different deferral levels. Ms. Young said Vanguard representatives use her research to discuss plan design strategies with clients.
Ms. Young conducted the match research with the attitude that she would be as content to prove the alleged effectiveness of match stretching as she would be to "bust the myth."