Rich matches boost employees' savings, support recruiting

As far as 401(k) employer matches go, Abbott Laboratories' is pretty hard to beat. Employees at Abbott contributing 2% to their retirement accounts receive a startling 5% match.

"That's a 250% return on your 2% contribution," said Diego Martinez, Abbott's Chicago-based divisional vice president of benefits and wellness.

Energy services company AVANGRID Inc. also offers employees a "rich" 401(k) matching contribution. The company matches $1.50 per $1 that employees put into their accounts, up to 8%.

That means that if a participant contributes 8%, he or she will receive a 12% match. Union employees receive slightly lower matches that are either 150% on 6% or 150% on 7%, which are "still very, very rich formulas," said Paul Visconti, the company's Orange, Conn.-based senior director of total health and retirement programs.

AVANGRID implemented the generous matches to differentiate the company and its $2 billion 401(k) plan and "get people in the door and have them stay throughout the course of their career," Mr. Visconti said.

Matching employee contributions more than dollar for dollar — as Abbott and AVANGRID are doing — is generous and highly unusual.

Most employers match either dollar for dollar (49.8%) or 50 cents per dollar (31.2%), with the most common matching formula being 50 cents per dollar on the first 6% that employees put in (21.3%), according to the Plan Sponsor Council of America's latest annual survey of profit-sharing and 401(k) plans.

Only 2.8% of employers match more than dollar for dollar, the PSCA survey found.

The relatively few employers that match more than dollar for dollar do so to attract and retain employees and in some cases to compensate for shutting down their defined benefit pension plans, according to industry consultants. Other companies, worried about the prospect of workers not being able to retire, want to help their workers build their retirement savings faster, consultants said.

For Abbott, making the $15.4 billion 401(k) plan accessible to employees through a low 2% employee deferral rate "entry point" was a key factor in designing the match formula in 2001.

"We want to encourage people to save for retirement," Abbott's Mr. Martinez said, noting that a 2% deferral rate is manageable for most employees. "Once you get people starting to save, then everything becomes easier."

Mr. Martinez believes that the generous match has made a difference in the company's recruiting efforts. Workers who have other financial needs and can't contribute the 6% or more that other companies may require to get the maximum match may find a good "value proposition" in Abbott.

"The fact that we have this very low entry point, I think it makes a difference," Mr. Martinez said.

AVANGRID too was looking to attract and retain employees when it implemented its richer matching formulas, which started going into effect in January 2021, AVANGRID's Mr. Visconti said.

"During COVID, when everybody was considering laying off people, cutting back benefits and reconfiguring their spend, we were doubling down on our participants and increasing our 401(k) matching formulas," he said.

The Harris Center for Mental Health and IDD, a public mental health authority for Harris County, Texas, also aimed to gain a recruiting edge through the match in its 403(b) plan. But Harris took a slightly different approach than Abbott and AVANGRID. The non-profit opted to match employee contributions dollar for dollar on the first 5% employees put in, and then threw in an additional non-elective contribution of 5% or an automatic extra 5% regardless of whether employees contribute to the 403(b) plan or not.

Harris Center employees who contribute 5% therefore receive 10% — or twice what they put in.

The combined match and non-elective contribution are a big part of the agency's recruiting and retention strategy, said Kip Baughman, director of total rewards at The Harris Center in Houston. As a non-profit, the agency "does not compete as strongly on the base salary side of things," Mr. Baughman said.

The "five-five-five retirement program" — as the 403(b) plan and related 401(a) and 457 plans are marketed — always draws positive feedback on employee surveys and is appreciated when new people join the organization, Mr. Baughman said.

The retirement plan has played an especially strong role in employee retention at the Harris Center, which has a "high population" of long-tenured employees serving 15 to 20 years, added Joseph Gorczyca, vice president of HR at The Harris Center in Houston.

"Mental health is hard," he said. "We really do want to encourage people to be here for the longer term. If we just have people who are churning, that isn't good for the organization."

Employers looking to improve recruiting and retention, however, are more likely to offer a non-elective contribution than to match more than dollar for dollar, said Rob Austin, vice president and head of research at Alight Solutions in Cornelius, N.C.

Mr. Austin cited company research showing that 4% of employers match more than dollar for dollar, whereas 21% of employers offer non-elective contributions.

"A lot of employers are going at that from a diversity, equity and inclusion angle," Mr. Austin said, explaining that "people of color tend to participate at a lower rate."

Aside from gaining a recruiting and retention advantage, some employers that match more than dollar for dollar or give non-elective contributions may do so because they terminated their pension plans and want to make up for the lost benefit.

AVANGRID, for example, was prompted to fortify its match in part because it froze almost all of its pension plans from 2020 to 2022. While the company wanted to differentiate its "value proposition for employees," its more immediate short-term goal was to mitigate the impact of the pension freeze on participants, AVANGRID's Mr. Visconti said.

"Freezing the pension plans gave us the funding and the communication narrative to allow us to proceed," he said.

David Stinnett, the Malvern, Penn.-based head of strategic retirement consulting at The Vanguard Group Inc., has seen some employers make the match in their 401(k) plans richer for that very reason.

"In some cases companies are shutting down or freezing their defined benefit pension plans and in doing so they go through great pains to try to make their employees whole," he said.

Whether matches will get richer in today's tight labor market remains an open question. "I don't think we've ever really had a time where there's pressure on the bottom line for an employer but yet also the tight labor market at the same time," said Alight's Mr. Austin, adding that employers will need to weigh whether they want to spend on retirement benefits, health insurance or pay.

"Employers are trying to figure out what's going to resonate most with employees," he said. "I think it's going to be interesting to see how this shakes out."