Employers that automatically enroll their workers in 401(k) plans tend to match their employees’ savings at a lower level than other employers, according to a report from the Center for Retirement Research at Boston College.
About 90% of automatically enrolled 401(k) plans offer an employer match. Typically, employers match 50 cents of every dollar an employee saves, up to 6% of their salary. But workers in automatically enrolled plans received 34 cents on every dollar, whereas those in plans without automatic enrollment got 47 cents.
The retirement center found that companies with automatic enrollment justified the lower match rates because their investing base was, by default, larger and, therefore, more costly.
“While automatic enrollment is likely to achieve the goal of increasing pension coverage, it might also work against the principal goal of increasing retirement savings,” the report said. “The prospect of lower match rates may not only reduce employer contributions to workers’ retirement accounts, but some research suggests that lower match rates might also lower workers’ own retirement contributions.”