Research from LIMRA shows that most workers will only put enough in their defined contribution (DC) plan to receive the maximum matching amount from their employers.
The LIMRA study compared workers from not-for-profit and for-profit companies and found that only about a third of employees with DC plans are saving more than 10% of their salary. In the not-for-profit sector, 34% of Millennials, 28% of Gen X, and 27% Baby Boomers are setting aside more than a tenth of their income. Savings rates in the for-profit sector were marginally higher, with 35% of Millennials, 35% of Gen X, and 36% Baby Boomers saving more than 10% of their earnings.
Cannot afford to save more
The survey also found that 20% of employees with access to a DC plan were not contributing any money at all. Asked why they do not contribute, 67% of for-profit workers and 53% of not-for-profit workers said they cannot afford to do so or that they have other saving priorities.
“The study demonstrates the powerful incentive a company match can have on employee behavior,” says Michael Ericson, an analyst with the LIMRA Secure Retirement Institute. “Institute research shows nearly half of American workers believe they are not saving enough for retirement and 4 in 10 working households have less than $25,000 saved for retirement. Plan providers can help employers increase their employee’s savings behavior by recommending a stretch match strategy, which would require an employee to save a higher percentage to attain the full company match.”