Does your company have a paltry 401(k) match? This could be why

Not getting much of a 401(k) match? Perhaps you should blame the worker in the next cubicle.
(ryasick / Getty Images)

Is your company making a paltry contribution to your 401(k) retirement account? If so, this may be why.

Companies that automatically place employees in 401(k) plans contribute less money to workers’ retirement accounts than companies that don’t automatically enroll employees.

That’s the upshot of a new study released Tuesday.

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Seven years ago, Congress passed legislation allowing companies to automatically place workers in 401(k) plans.

The goal was to increase participation among people who otherwise wouldn’t have joined their 401(k)s. It’s one of several steps that the government and private companies have taken to boost Americans’ dreary level of retirement saving.

On the surface, it appears to have worked. At companies with automatic enrollment, 77% of employees are in 401(k)s, according to the study. It’s 67% at companies without auto-enrollment.

But the analysis by the Center for Retirement Research at Boston College suggests that, in effect, the rest of us may be paying for it.

Companies typically make matching contributions to each employee’s 401(k) account. The match at companies without auto-enrollment is 3.5%, according to the study.

Companies with auto-enrollment pay only 3.2%. That might not sound like much of a difference, but it’s statistically significant, according to the study.


Why the lower rate? Because companies are trying to hold down their overall 401(k) costs, the study suggests.

Companies with higher levels of 401(k) participation have to shell out more in matching contributions. So they might be responding by reducing matching contributions.

“Firms with auto-enrollment may offset higher 401(k) participation costs by trimming their per-participant contributions,” the study said.

In other words, employees who normally contribute to their 401(k)s might be subsidizing the participation of others.

“While auto-enrollment will increase saving for workers who would not have participated without it, those who would have participated on their own may end up saving less due to relatively low employer match rates,” the study concludes.


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Follow Walter Hamilton on Twitter @LATwalter