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The next two articles will focus on one particular metric that can boost participants’ chances even further: the participant’s total saving rate, which consists of the employer’s contribution rate and the employee’s deferral rate.
In 2023, says Vanguard’s Jeff Clark, the author of How America Saves 2024, “our participants’ median total saving rate was 11%, which means that about half were saving at strong levels and the other half may need to save more.” How much more? “We recommend that participants save at least 12% to 15% of their pay, including both their contributions and the employer match, to meet their retirement goals,” he says.
Offering employer matching contributions
Defined contribution plans with employee-elective deferrals can be grouped into four categories based on the type of contributions that the employer makes to the plan:
- Plans with matching contributions only.
- Plans with nonmatching employer contributions only. 1
- Plans with both matching and nonmatching contributions.
- Plans with no employer contributions.
As Figure 1 shows, 96% of Vanguard plans offered some type of employer contribution in 2023 (with 10% offering only nonmatching contributions), covering 99% of participants. And 43% of participants were in plans that offered both matching and nonmatching contributions.
Type of employer contribution | Percentage of plans | Percentage of participants |
Matching contribution only | 50% | 53% |
Nonmatching contribution only | 10% | 3% |
Both matching and nonmatching contribution | 36% | 43% |
Subtotal | 96% | 99% |
No employer contribution | 4% | 1% |
Aligning the enrollment default rate to the employer matching rate
Note:
- All investing is subject to risk, including the possible loss of the money you invest.