$24B in Match Dollars Left Unclaimed

A research report issued by Financial Engines, “Missing Out: How Much Employer 401(k) Matching Contributions do Employees Leave on the Table?,” estimates that Americans leave $24 billion in unclaimed 401(k) company matches on the table each year. 

Why do so many American retirement plan participants pass up the chance to potentially receive thousands of additional dollars every year in the form of employer 401(k) matching contributions? The company examined the saving records of 4.4 million retirement plan participants at 553 companies, and found that one in four employees (25%) misses out on the full company 401(k) match by not saving enough. The typical participant failing to receive the full match loses out on $1,336 of potential free money on the table each year, which adds up to an extra 2.4% of annual income not received. With compounding, this could amount to as much as $42,855 over 20 years.

Using data from its own client base of large employers that provide advice services, Financial Engines based its data on those 401(k) participants who are eligible to contribute into their 401(k) plans, says Greg Stein, director of financial technology at Financial Engines. They filtered down further to those participants for whom they have salary data, then those in a plan with an employee match to arrive at 4.4 million participants.

Most employers (92%) that offer a 401(k) plan also match their employees’ contributions, according to data from Aon Hewitt. The most common scenario is one dollar for every dollar the employee contributes, up to 6% of the employee’s annual salary.  

“Plan sponsors and plan advisers have a number of levers at their disposal to impact these savings rates and hopefully these numbers will help them to think about how they might approach the topic with their participants,” Financial Engines Spokesman Mike Jurs tells PLANADVISER.

Receiving services from an adviser meant participants were more likely to get the match, no matter the participant’s age or income level, according to Financial Engines’ report. Age and income do have some impact on whether or not the participant will walk away from the match, Stein says. “The larger your income and the greater your age, the less likely you were to miss out on the full employer match,” he tells PLANADVISER. For some ages, between 35 and 45, the effect flattens a bit, likely because they are buying a first house, paying for childcare and starting to put money away for their children’s education.

The Impact of Advice

The report found that across all ages and income levels, participants who used advisory services missed out less on their employer match compared with those not receiving this help (15% versus 26%). Among employees earning less than $40,000 who used workplace advisory services, 25% percent missed out on part of their employer match, compared with 44% of those who did not use advice services.

The numbers give plan sponsors a clear assignment, Stein says, and can be used in messaging targeted at early middle age savers: “If you’re not getting the full match, take a second look at your contribution level.” Or, he says, they can message younger employees, who have time on their side. Plan sponsors can remind them of the big benefit they gain in getting started early, since they can accumulate more savings over time, and take advantage of the compounded growth in those savings.

“Many people may feel they can’t afford to save more,” Stein says, adding that he hopes the report will help people realize they can’t afford not to save, if they are unaware of the benefit. If saving is a challenge, there are ways to save more—enrolling in auto escalation or contributing the amount of a raise, for example—without feeling it as much. The report can also raise awareness of the benefits of meeting with an adviser.

The reason Financial Engines decided to try to quantify the amount of unclaimed match money was that it had never been calculated previously, Jurs says. “Others in the industry have looked at matches,” Jurs says, “but we never saw the amount quantified. Just how much are people leaving on the table? We thought it would be interesting to find out.”

“The number is real money,” Stein concludes, “and it’s kind of a wild number. We knew people weren’t saving enough to get the match, but the amount was surprising.”

A copy of the report can be downloaded from Financial Engines’ website.