Some employers not contributing to DC plans despite tight labor market – Vanguard

Even as employers scurry to make their workplace retirement plans more competitive in today's tight labor market, some are holding back on matching employee contributions.

In 2021, 5% of employers did not offer any kind of company contribution to their employees' retirement accounts, up from 4% in 2020, according to a research report Vanguard published in March.

Dave Stinnett, head of strategic retirement consulting at Vanguard, said he did not have specific information on why some plan sponsors did not make contributions but speculated that "it could just come down to companies prioritizing spending on other types of benefits."

Employers that did not make contributions to workers' retirement accounts were concentrated in the publishing or information industry, where 13% declined to offer the benefit. The publishing industry was followed by the legal services and utilities industries, where 11% and 9%, respectively, passed on making employer contributions.

Employers typically make either matching or non-matching contributions. Matching contributions are based on how much employees put into their accounts, with most plan sponsors matching .50 cents for every dollar employees contribute up to 6% of their pay, for a total maximum match of 3%. Non-matching or "non-discretionary" contributions are given to employees regardless of whether they're contributing to their retirement accounts.

In 2021, 85% of plan sponsors offered an employer matching contribution, and 46% offered a non-matching contribution. More than a third (36%) offered both types of employer contributions, according to Vanguard data.

"While a small percentage of employers did not offer contributions, we are extremely encouraged to see that 95% of retirement plans offered a matching contribution, a non-matching contribution, or a combination," Mr. Stinnett said.

The data was based on Vanguard's 2022 How America Saves report, which sampled about 5 million participants in 1,700 defined contribution plans over a 10-year period.