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Has the Stretch Match Been Oversold?

Defined Contribution Plans

While the so-called “stretch” match has been touted as a mechanism to encourage higher savings rates with no additional cost to the employer, a recent study suggests it has its limits. What’s been your experience?

With a stretch match, rather than offering a 50-cent match on every dollar contributed to a 401(k) plan up to 5% of a participant’s salary, a sponsor might offer 25 cents on every dollar up to 10% of salary for the same cost. The idea is, of course, that participants – whose rates have traditionally clustered around the rate of employer match – will be inclined to “stretch” their own rate of savings to the higher level in order to get the full match.

However, a recent report from Vanguard, based on a study of some 328 voluntary enrollment plans suggest that a stretch match may not fare as well. In fact, plans with a 100% match had participation rates that were 20% to more than two times higher than the plans that stretch the same match value to a higher threshold.

Now, in fairness, the study wasn’t exactly apples to apples – there are lots of differences in plans, workforces, income levels and geography that could have contributed to the study outcomes. It does, however, raise the question; are participants “wise” to the impact of the match scaling – and if it really is an effective way to increase deferrals. This week, we’d like to know what you think – and what you’ve experienced – with “stretching” the match.

Reply to this week’s NAPA-Net Reader Poll at https://www.research.net/r/HQ55HVD.

And we’ll have it all wrapped up for you on Friday.

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