When a Company Match Is in the Mix

Companies may not be giving out free lunches, but many have free money to give workers.

It comes in the form of the company match in 401(k) plans, and Steve Stone tries to make sure every eligible worker at 1st United Services Credit Union takes advantage of it.

“We have tried to stress that if you match what we put in, then you are getting the full benefit,” said Stone, 1st United Services’ 401(k) plan administrator and chief financial officer.

About 86 percent of the Pleasanton, California-based credit union’s workers take all the free cash the company hands out. The benefit is generous: If workers contribute 5 percent of pay, the company matches 100 percent of that amount. On top of this, 1st United Services matches an additional 40 percent on the same 5 percent a worker contributes, but adds a small catch: Participants need to work at 1st United Services for five years to be fully vested in this part of the company contribution.

Currently, the 145 participants in the $7.5 million 401(k) plan have an average account balance of $52,000.

So here’s the math: If the participant gets to the second level of the match, that person gets $1.40 from the company for every dollar the worker contributes to his or her 401(k) plan.

Stone said the strategy behind the generous match mirrors the company mission statement, which is offering a lifetime of crucial financial services.

“The key is lifetime. We are looking for long-term relationships,” Stone said. “The board of directors feels it is important to apply the lifetime concept to the staff as well; taking care of our staff today includes taking care of our staff tomorrow.”

For years, companies have used matches as a way to get workers to put a portion of their salary into plans. Employees contribute a certain amount to their 401(k) plan and employers match a certain amount. There’s no set structure. Companies aren’t required to match employee contributions, but for those that do, formulas vary.

It’s not as easy as it seems to get people to take free money, said Sue Fulshaw, managing director of retirement plan product management at the Teachers Insurance and Annuity Association of America-College Retirement Equities Fund, better known as TIAA-CREF. The financial services company recently surveyed 1,000 workers contributing to a retirement plan and found 23 percent said they don’t contribute enough to get the full match.

The lower down the pay scale, the more likely it is that workers don’t get the full match. For workers earning $35,000 or less, 36 percent say they don’t get all the free money.

“Low-wage earners have a lot of competing financial demands,” Fulshaw said.

Most workers don’t understand what they’re missing out on either, the study showed. Respondents were asked how much they would get from an employer match if they started working at 35 years of age, earned $50,000 annually through age 65, and contributed 3 percent of pay and got a 3 percent company match each year. Nearly a third of respondents thought the employer match would be less than $50,000, when in reality it would be $72,518.

The number of people not taking advantage of company matches shows that strong communication is vital, Fulshaw said. Most workers (72 percent) told TIAA-CREF that they’d like to hear more about matching contributions. Showing workers what a 3 percent contribution can do over time might be a good starting point for communications.

“It’s hard to do the math and have a concrete example of what an employer match will do,” Fulshaw said. Even a small employee contribution with an employer match can “make a big difference.”

Stone said he agreed that lower-wage earners have especially difficult demands on finances. That’s why 1st United Services tries to arrange meetings with those not participating or taking full advantage of the 401(k) plan’s match.

He said 1st United Services tries to be respectful when checking in with workers to see whether they can participate. Sometimes events happen where they can’t contribute one year, and need a reminder that the 401(k) is a worthwhile saving opportunity when their financial constraint lifts.

“We aren’t going to force a counseling session, but we tell them: ‘Spend a few minutes with us and let’s talk about it,’ ” Stone said. “A lot of times we get people to become participants because we don’t forget about them.”

Patty Kujawa is a writer based in Milwaukee. Comment below or email editors@workforce.com. Follow Workforce on Twitter at @workforcenews.