Americans nationwide leave an estimated $24 billion in unclaimed 401(k) company matches on the table each year, according to a new research report from Financial Engines.
The report — Missing Out: How Much Employer 401(k) Matching Contributions do Employees Leave on the Table? — found that one in four missed out on at least part of their employer match by not saving enough to receive it.
“The 401(k) 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, in a statement. “Maximizing your available 401(k) match is a key way for millions of American employees to improve their retirement security.”
Financial Engines looked at the saving records of nearly 4.4 million retirement plan participants at 553 companies and found that more than 1 million of them missed out on at least part of their employer match.
Of this group, 285,386 employees (7%) received no match, and the rest (792,389 employees) received only a partial match.
The typical employee failing to receive the full match leaves $1,336 of potential “free money” on the table each year, according to Financial Engines, which equates to an extra 2.4% of annual income not received.
That’s no chump change, especially when looking at an entire working career.
Missing out on $1,336 each year could amount to as much as $42,855 over 20 years, according to Financial Engine’s calculations assuming conservatively that the worker’s salary is fixed and the annual growth rate is 4.5 percent. Missing out on $1,336 on average each year over 40 years adds up even more — to $142,270.
“By extending this analysis to all 73.7 million American employees who are active participants in defined-contribution retirement plans, we estimate that American employees nationwide are passing up approximately $24 billion annually in employer matching contributions by not saving enough to receive their full employer 401(k) match,” the report states.
Advisory services play a key role in the employees who do take advantage of 401(k) company matches, Financial Engines found.
The report compared the employees who use its advisory services — including both active users of online advice and professional management — to those who do not and found that employees using advisory services were more likely to receive their full employer match.
According to the report, only 15% of employees using Financial Engines advisory services missed out on at least part of their employer match. Of those who do not use advisory services, over one-quarter (26%) did so.
“Employees using advisory services better maximized their employer match at every income level compared to employees who did not use these services,” the report states. “This is especially important for employees earning low to moderate incomes because these employees are more at risk of under-saving for retirement than workers with higher incomes.” The report found that both lower-income and younger employees are much more likely to miss out on their employer matching contribution. For example, 42% of people earning less than $40,000 per year do not take full advantage of the employer match versus only about 10% of employees with incomes more than $100,000 per year.
Moreover, employees age 60 and over are also less likely to miss out on the employer match versus employees under age 30 — 16% versus 30%.
Because of these stats, Stein stressed the importance of professional financial help.
“Designing a saver-friendly 401(k) plan and making high-quality, independent advice available can help employees save more and avert the growing retirement crisis facing America,” said Stein, in a statement. “If you have access to professional financial help, use it. By saving more today and taking advantage of the full employer match benefit, American employees can improve their chances of enjoying more secure retirements.”
The employees in this study had an average age of 45, and median income of $63,200 — making them slightly older and better paid than the typical American worker.
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