Deferral Rates Depend on More than Company Match

When deciding how of their income to defer into a retirement plan, participants’ decision varies based on the influence of outside sources, plan design features, demographics, and their general financial attitudes.

On average, a new report from Spectrem Group found plan participants contribute 7% of their salary to their company’s retirement plan. Close to half (44%) contribute 6% or more to the plan and of these, half contribute 10% or more. Six in ten (57%) plan participants contribute less than 6% and more than half (56%) of these contribute less than 4%.

According to the Spectrem report, the mean deferral rate for those who discussed the decision with a financial adviser is 7.4%, and for those who made the deferral rate decision on their own, it is 7.1%. For those who discussed the deferral rate decision with a spouse or partner, the mean rate is 7%, while it is 5.6% for those who discussed the decision with other family members or friends.

According to the report, when asked the approach they took in determining how much of their salary to defer, a slight majority (51%) said they save what they can afford. Other strategies included:

  • Targeting a percentage of earnings to save (20%),
  • Wanting to save something (13%),
  • Choosing a target fund balance to build by retirement (10%), and
  • Saving all income by living off spousal support (2%).

Participant Attitude Variances

Spectrem’s research suggests participant attitudes are important to the deferral rate decision. Several attitudes and beliefs were strongly associated with deferral rates, and four of the attitudes Spectrem tested showed a two percent or greater difference in deferral rates between those holding the beliefs and those not.

Those who said they consider themselves more a “saver” than a “spender” had a mean deferral rate of 8.4% versus 6.2% for those without that attitude. Similarly, respondents who indicated they have a well-defined retirement plan strategy for investing their retirement plan money had a mean deferral rate of 8.5% compared to a mean deferral rate of 6.5% for those who did not hold this belief.

Showing the effects of more negative attitudes, those Spectrem questioned who said “I’m concerned about the amount of debt my household currently has,’ had a mean deferral rate of 5.7% versus 7.7% for the group who did not hold that attitude. In addition, individuals who indicated that “At the present time, my household is not saving enough to meet our financial goals,’ had a mean deferral rate of 5.8% compared to 7.9% for those who did not say the same.

Influence of Demographics

Spectrem Group found the mean deferral rate for females is 6.3%, while the mean deferral rate for males is 7.6%.

Marital status seemed to have little influence on deferral rates; however, of married participants who also have a working spouse who is also eligible to contribute to a retirement plan, deferral rates tend to be high (8%) among those who choose to defer a similar proportion of their incomes as that of their spouse or partner to the plan. Those who are single have a mean deferral rate of 7.1%, compared to those who are married or living with partner, at 6.9%.

Individuals with over $75,000 in income have a mean deferral rate of 8.1%, while those with $50,000 to $75,000 showed a mean deferral rate of 7.2%. The mean deferral rate for those whose salaries are less than $50,000 is 5.4%.

Age seemed to be a significant factor in the deferral rate decision. The report says individuals age 55+ have a mean deferral rate of 8.2%, while those ages 40-54 deferral a mean 6.9% and those under 40 have a mean deferral rate of 5.9%. The mean deferral rate for those with less than 10 years to retirement is 7.7%; 11-20 years to retirement is 6.9%; and more than 20 years is 6.4%.

Plan Design Influences

Deferral rates are not strongly associated with the presence or absence of an employer match, as the mean deferral rate for those in plans with employer match is 7.3%, for those in plans with an employer profit sharing contribution it is 7.2%, and for those in plans with no employer contribution it is 8.2%. However, Spectrem found participants with an employer match plan are very likely to take full advantage of the match – 82%.

One in five (18%) respondents said their organization uses automatic deferral increases, and six in ten respondents within those organizations participate in their retirement plan. Of these, 21% plan to opt out before the maximum contribution level is reached. Half of all respondents (48%) said they would participate in their company’s retirement plan if their employer implemented automatic deferral increases.

One in six (16%) eligible participants are making catch-up contributions. Of those not taking advantage of catch-up contributions, most (56%) say it is because they cannot afford to, but a significant proportion (19%) indicated they are not making catch-up contributions because they did not feel it was necessary.

The Spectrem Group report, “Deferral Rate Decision Making,” can be purchased from the company at