Company match lures many in 401(k) participation


Do you squirrel away money in your company's 401(k) retirement plan? If not, you probably work for an employer that refuses to match your 401(k) contributions.

Workers who are offered a 401(k) match are more likely to join such a program, says Leslie Papke, professor of economics at Michigan State University. And to some degree, workers can be persuaded to put more money into the plan if they get a larger employer match.

At firms that offer no 401(k) match, about 74 percent of eligible workers participate, Mr. Papke said. But where an employer matches, participation jumps to 85 percent.

A 401(k) is a retirement plan that allows workers to set aside

some of their pretax income. In some cases, those contributions may be voluntarily matched by the employer. Money accumulated is invested in a variety of securities, and no tax is due until cash is taken out, presumably at retirement.

In the Michigan State study, Mr. Papke found that when employers put in 10 cents for each dollar saved by workers, contributions by workers rose about 29 percent from their level with no match. Another example: When the matching rate rose to 40 cents from 30 cents, employee contributions increase by 7 percent.

The study was significant because 401(k) plans are rapidly replacing traditional pension plans, which don't require workers to contribute their own money. In fact, the number of firms offering 401(k)s more than tripled between 1983 and 1988.

So, with workers sharing more of the load for their own retirement savings, employers should be looking for ways to boost 401(k) participation, Mr. Papke said. In some cases, that may mean increasing the amount of contributions they are willing to match.

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