Stretching the match: Unintended effects on plan contributions

March 1, 2019

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One strategy proposed to increase plan contributions, in plans not opting for automatic enrollment, is to "stretch the match." When defined contribution plan sponsors stretch the match, they apply an existing dollar match to a higher contribution rate. For example, instead of matching 100% on the first 4% of pay, they match 50% on the first 8% of pay. The idea is that the higher match threshold will encourage participants to contribute more to the plan.

However, stretching the match does not appear to lead to higher contribution rates, according to Vanguard's Center for Investor Research. Researchers found that higher match thresholds are typically associated with lower contribution rates and lower plan participation. Seemingly counterintuitively, plan sponsors with voluntary enrollment plans seeking to raise plan contribution rates should consider designs with 100% match formulas.

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