The formula employers use for their matching contributions in their 401(k) plans serves as a strong cue to workers for how much to contribute, analysis by The Principal finds.
When employers promise to match 100% up to 2% of an employee’s contribution, the employee invests an average of 5.3%. When employers promise 50% up to 4% of pay, employees’ average contributions rise slightly to 5.6%. And when employers offer a match formula of 25% of up to 8% of pay, the average participant contribution jumps to 7%. In each case, however, the employer is investing no more than 2% of a worker’s salary.