One strategy proposed to increase plan contributions, in plans not opting for automatic enrollment, is to “stretch the match.” When defined contribution plan sponsors stretch the match, they apply an existing dollar match to a higher contribution rate. For example, instead of matching 100% on the first 4% of pay, they match 50% on the first 8% of pay. The idea is that the higher match threshold will encourage participants to contribute more to the plan.
We find that higher match thresholds are typically associated with lower plan participation and lower employee contribution rates. However, higher match values are typically associated with higher participation and higher employee contribution rates.
Absent a case study of a plan that stretched the match, we analyze a group of plans with match formulas that mimic or simulate this strategy. We find that contribution rates decline by 25% to 50% when the match is stretched.
Automatic enrollment remains a superior strategy for plan sponsors seeking to raise plan contributions. Counterintuitively, stretching the match does not appear to lead to higher plan contribution rates. Any incentive to obtain the full stretched match is more than offset by a reduction in plan participation rates.