Since when do American pass up free stuff, especially money? A new research report, “Missing Out: How Much Employer 401(k) Matching Contributions do Employees Leave on the Table?” from Financial Engines estimates that Americans leave $24 billion in unclaimed 401(k) company matches on the table each year.
That works out to about $1,300 for each employee per year.
The company examined the saving records of 4.4 million retirement plan participants at 553 companies, and found that one-in-four employees (25 percent) miss out on receiving the full 401(k) company match by not saving enough. The typical employee failing to receive the full match leaves $1,336 of potential “free money” on the table each year, which equates to an extra 2.4 percent of annual income not received. With compounding, this could amount to as much as $42,855 over 20 years.
According to Aon Hewitt, 92 percent of employers with 401(k) plans match employees’ 401(k) contributions, with the most common scenario being one dollar for every dollar the employee contributes up to six percent of the employee’s annual salary.
“The 401(k) copmany match is one of the best deals going for employees, providing an immediate guaranteed return per dollar invested, ” explained Greg Stein, director of financial technology at Financial Engines. “Maximizing your available 401(k) company match is a key way for millions of American employees to improve their retirement security. While many people might feel like they can’t afford to save more, we hope that this study helps them realize what they are leaving behind.”
According to the report, lower-income and younger employees were much more likely than others to miss out on at least part of their employer matching contribution. For example, 42 percent of plan participants earning less than $40,000 per year do not take full advantage of the employer match, compared to just 10 percent of employees earning more than $100,000 annually. Likewise, employees under age 30 are approximately twice as likely to miss out on the employer match compared to employees over the age of 60 (30 percent vs. 16 percent).
However, for many employees, middle-age poses additional savings challenges. Financial Engines found that the steady decline in employees missing out on their match is interrupted between the ages 35 and 45, when the rate of decline flattens out. While the report did not look at why the savings dip occurs, the costs of raising a family or buying a home could be making it more difficult for employees to save for retirement during this time.
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