According to a recent study conducted by Charles Schwab and Age Wage, employers can encourage higher contribution rates by employees by raising the matching ceiling and reducing the percentage matched. The Schwab study shows that, ranked by percentage of compensation contributed, the highest concentration of employees contribute enough to receive the full match.
This implies that raising the matching ceiling can incent employees to contribute more. But to increase the matching contribution ceiling without increasing costs to the employer, the percentage matched must be adjusted.
For instance, an employer that matches 100% of an employee’s contribution up to 5% of pay could consider matching 50% of an employee’s contribution up to 10% of pay. Under this formula, the employer still isn’t matching more than 5% of pay, but employees may be incentivized to contribute 10% of pay in order to receive the full match.
If you are considering ways to encourage higher contribution rates among your employees, contact your relationship manager to discuss various plan design techniques that can be used to help you achieve your goals of offering a best in class retirement plan.
This information should not be considered tax or legal advice. GuideStone stands ready to assist your organization as you work with your legal and tax advisers by providing resource information that you and your adviser may find beneficial.
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