Leaving Match on the Table? Part 2 of 2: Innovations to Make Up for Missed Opportunities.

Our just-released 60th annual PSCA survey confirms a steady increase in employer contributions over the past 10 years.  Employer contributions averaged 3.8% of payroll in 2007.  During the Great Recession, it dipped in 2008, 2009 and 2010 before increasing in 2011.  Today, the average employer contribution is 4.8% of payroll.  Those results match our data from three Great Recession snapshot surveys (2009, 2010, 2011), which showed:  

• 18% of surveyed plans with a company match reduced or suspended their match, 
• 26% of surveyed plans with non-elective company contributions suspended company contributions,  
• More than 50% of all surveyed plans that had reduced employer support had already resumed prior levels, and 
• 12% of surveyed plans had increased employer financial support after 2008.   
• And, like most plan sponsors, we maintained our employer match throughout the Great Recession.

A week ago, in part 1 of 2, I highlighted actions I took as a plan sponsor to encourage workers to save and to avoid leaving employer match “on the table,” including:  A biweekly "true-up" in employer match, individual annual customized marketing/outreach, catch-up contributions, Roth 401(k) contributions, perennial automatic enrollment/escalation, 401(a) after-tax contributions for non-highly compensated workers, and in-plan Roth conversions.  

So, what else can a plan sponsor do for those workers who failed to take full advantage of the retirement savings plan?  I am not aware of any plan sponsor who “gap fills” employer financial support – for those who did not participate in the past, for those who didn’t contribute enough in the past to receive the full employer financial support, or for those situations, such as we experienced due to the Great Recession, where the plan sponsor temporarily suspended or reduced employer financial support.  If the options I implemented were not enough for you, here are three more changes that a plan sponsor might consider: 

• First, the employer might amend the plan to match a worker’s catch-up contributions,
• Second, the employer might amend the plan to also permit deemed IRA contributions, and 
• Third, an employer might retroactively amend the plan to benefit current, non-highly compensated employees, by “gap filling” the employer financial support missed during the four immediately prior plan years.*      

As stated in the prior post, the visiting Japanese executives asked me, way, way back in 1993:  “What is your duty to those who do not participate and those who do not save enough to get the full employer support?”  My initial thoughts focused on getting all eligible workers to participate.  Of course, since then, we have a number of new features that plan sponsors can offer to fill gaps in retirement savings.   

* Always check with tax and legal counsel before taking any action to retroactively amend the plan to increase benefits for non-highly compensated employees.  We are providing this information to you solely in our capacity as individuals with knowledge and experience in the industry and not as legal advice.  The issues presented here may have legal implications, and we recommend discussing this matter with your tax and legal counsel prior to choosing a course of action.  This publication was prepared to support the informational needs of the Plan Sponsor Council of America on the issues discussed.  The publication focuses on the needs of our association and the issues of interest to association members.  The publication is not and should not be used as a substitute for legal, accounting, actuarial, or other professional advice.