A new report by Morningstar highlights the impact of the Saver’s Match on future savings for Millennial and Gen Z investors.
Introduced in SECURE 2.0 legislation, the Saver’s Match provides eligible savers with a 50% match on the first $2,000 of qualified retirement contributions starting in 2027, with a maximum match of $1,000 per individual for each tax year. To qualify for the Saver’s Match, filers must earn an income of below certain cutoffs. For single filers, the phaseout period starts at $20,500 before capping at $35,500. Head of household filers are phased out between $30,750 to $53,250, and joint filers phase out between $41,000 and $71,000.
For the report, the Morningstar Center for Retirement and Policy Studies used its Model of U.S. Retirement Outcomes to understand the program’s effect under four behavioral scenarios. These situations include investors who had no change in savings behavior; new savers who have not started saving for retirement but now will under the program; active savers who allocate more to take advantage of the full match; and a scenario that uses higher probabilities of new savers and active savers contributing more.
Depending on the scenario, Morningstar adds that eligible savers could see as much as a double-digit improvement to their retirement savings from the Saver’s Match. For example, those in scenarios three or four had a mean percentage increase of 10.07% and 12.01%, respectively, while the median percentage increase in scenario four was 10.59%.
Specific groups, like single women, non-Hispanic Black Americans, and Hispanic Americans could also see greater benefits due to qualification factors, Morningstar finds. Each of these groups are eligible for the match more so than other demographics, which could potentially act as a solution to the retirement savings gap, Morningstar suggests. For example, 43% of single women qualify for the program, compared to 35% of men and 30% of couples. Close to half (49%) of Hispanic households are eligible to participate in the program, while 44% of Non-Hispanic Black households also qualify.
Ultimately, Morningstar reports that the best outcomes occur when workers change their savings behavior in response to the program. This included scenarios in which nonsavers began to save and when active savers contributed more. New and active savers who developed a higher probability in contributing more to retirement had a notable boost in their mean and median averages.
The findings highlight the impacts of enacting retirement planning legislation and regulation, Morningstar researchers write. “While the quantitative results are intuitive, the key point is that the federal government and retirement industry should be encouraged to work together on the implementation to maximize the impact of the Saver’s Match,” Morningstar reports.
Furthermore, Morningstar urges plan sponsors to provide targeted education and promotion about the program ahead of its implementation, and especially to low- or moderate-income workers who may not be contributing as much to retirement savings.
“This indicates that, to maximize the program’s impact, the government and retirement industry should focus on promoting the program to ensure that eligible individuals are aware of the incentives to participate. Plan sponsors are well positioned to identify and reach out to potentially eligible employees. By offering clear and accessible education, plan sponsors can significantly increase program participation, which, as demonstrated by our analysis, can lead to substantial improvements in retirement savings outcomes,” Morningstar concludes.
More information on Morningstar’s report can be found here.
SEE ALSO:
Morningstar HSA Report: Lower Fees, Better Investments, But Lots of Room for Improvement
Morningstar Lowers Retirement Withdrawal Rate to 3.7%
RSAA: Improved Plan Access, But Worse Overall Outcomes, Morningstar Retirement Finds
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.