Plan sponsors often wonder how to nudge their employees to save more in their 401(k)s. Inadequate contributions can lead to problems later, if employees don’t consider their long-term retirement plans.
One simple and promising strategy is to change your matching contribution formula. Rather than matching 50% of the first 6% of salary that employees contribute, consider alternate matching strategies that could be more helpful to increase employee contributions. For example, the same match budget can be used to stretch the match to 33.3% of the first 9% of salary.
This approach can help employees invest more in their 401(k)s than the traditional approach. And importantly, it nudges them toward saving more —a habit that more Americans should get into.
Reach out today to get answers to your questions about how to structure matching contributions, or to provide guidance on other 401(k) issues.
Distributions from traditional employer sponsored retirement plans are taxed as ordinary income and, if taken prior to reaching age 59½, may be subject to an additional 10% IRS tax penalty.