Friday, November 7, 2008

Tip of the Day

Be a matchmaker. New survey results from Charles Schwab reveals a link between how a company offers its 401(k) match and employee saving levels. From 2004 to 2007, employees were most likely to choose the plan’s “match ceiling” as their deferral level in order to maximize the employer contributions they can receive. Benefit managers can leverage such tendencies to maximize their employer matching plan as well as juice employee deferrals.

For example, Schwab explains:
* Company A offers a 100% match, up to 3% of employee pay.
* Company B offers a 50% match, up to 6%percent of pay.

In both these cases, an employee could receive a 3% match, but, according to Schwab's findings, employees in Company B's plan would be more likely to defer the extra 3% into the plan to receive the maximum employer match. The maximum cost of the match to the employer remains the same.

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