When you're offered a gift, do you throw it back in the giver's face?
That's what many employees are doing to their employers. According to a new study, one-third of employees don't contribute enough to their 401(k) plan accounts to take full advantage of their employers' matching contributions. By skimping on their retirement savings, these workers are turning down free money.
Making savings a priority
The problem spans age and income lines. As you might expect, low-income and younger workers are less likely to earn the full 401(k) match from their employers. But among those making $50,000 to $75,000, 24% don't max out their match. For incomes above $100,000, 12% don't reach the top threshold. When you consider that many employers match only small amounts -- often around 3%-6% of an employee's salary -- it's baffling why more high-income workers don't take advantage of what they're offered.
Similarly, although age is a definite factor, many older workers also don't take full advantage of this free money from their employers. More than one-quarter of workers age 40 to 65 don't max out their employer match.
Finding a fix
The lack of enthusiasm about 401(k) contributions is a concern to employers, who are increasingly looking to 401(k) plans as a substitute for traditional pension plans. Some companies, such as General Motors
Automatic enrollment is one way to get employees to save. Kinder Morgan Energy Partners
Other companies go further. For instance, IBM
Meet your employer halfway
Although some companies give generous benefits even if you don't make any contributions to your plan, most employers don't make it that easy for their workers. But when you consider that you should be saving for retirement anyway, the extra incentive to put some money into your retirement-plan account may be exactly what you need to motivate you to fill out the forms and figure out your best investment options.
In the end, though, it's a pretty simple thing: When you have a chance to get extra money from a matching contribution, you owe it to yourself to take it. It's probably the only chance you'll ever have to as much as double your investment with no effort and no risk.
For more on planning for a successful retirement, read about: