401(k) Match Motivates Retirement Saving

Employer contributions are the primary reason workers save in 401(k) plans.

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Most workers are lured into 401(k) plans by the promise of an employer contribution. 401(k) matches are the primary reason that workers participate in 401(k) plans, according to a Boston Research Group survey of 1,000 current and retired 401(k) participants sponsored by Fidelity Investments.

[See 10 Essential Sources of Retirement Income.]

The survey found that 92 percent of retirement plan participants indicate it is important not to miss out on company match dollars. The majority of 401(k) participants (90 percent) report they also value the tax deferral a retirement account provides. Just over half (55 percent) of those surveyed say they would not be saving for retirement if not for their 401(k) plan.

Despite the economic downturn, more than half (53 percent) of working respondents were able to increase their contribution rate in the last five years, typically because they received a raise or had extra money available (38 percent) or wanted to take full advantage of employer matching dollars (23 percent). But most workers still don’t think they are saving enough for retirement. More than half (54 percent) of current workers report they would contribute more to their 401(k)s if they could.

[See 7 Signs of a Good 401(k) Plan.]

However, a significant number of retirement investors are cutting back on the amount they save. Just under a quarter (23 percent) of those surveyed decreased the percentage of pay they contribute to a 401(k). The most common motivations for savings less were needing extra money (46 percent) and the elimination of a company match (9 percent). Many individuals who cut their savings rate (40 percent) say they already do or probably will regret their decision to reduce the amount they are tucking away for retirement.

Almost a quarter (23 percent) of the survey respondents have also taken a loan from their retirement account, often for an unforeseen emergency. However, 29 percent of individuals who have taken 401(k) loans would not do so again if they could help it.

[See Gen Y Takes on More Risk in 401(k)s.]

Many retirement savers are skeptical that their 401(k) alone will propel them to a secure retirement. Over a third (37 percent) of people with 401(k)s are saving in an IRA to supplement their workplace retirement plan and 33 percent are also enrolled in an employer-sponsored traditional pension plan. Workers age 55 and older are the most active users of IRAs, with 44 percent funding these accounts. Many 401(k) participants are also doing additional retirement saving in bank accounts (28 percent) and investing in stocks and bonds (28 percent). Only 19 percent of the 401(k) participants surveyed have no additional retirement savings outside their 401(k) plan.

Twitter: @aiming2retire