Why Workers Leave Matching Dollars on the Table

A 2023 Vanguard study revealed that 25% of employees contribute less than 4% of their salary to their 401(k), often missing out on their employer match. While financial constraints play a role, psychological biases also contribute to this missed opportunity. Understanding these biases can help plan sponsors implement strategies to encourage higher participation and maximize retirement savings.

Key Psychological Barriers to Maximizing Employer Matches

Present Bias & Hyperbolic Discounting

• People prioritize immediate rewards over long-term benefits, leading them to undervalue employer matches.
• Solution: Frame the match as an “instant 100% return” and use tools that help employees visualize their future self benefiting from increased savings.

Anchoring & Status Quo Bias

• Employees often rely on default contribution rates, assuming they are optimal, and resist change.
• Solution: Increase default deferral rates and implement auto-escalation features to gradually boost savings.

Paradox of Choice

• Too many investment options can lead to decision paralysis, causing employees to avoid making changes to their contributions.
• Solution: Simplify investment choices, promote target-date funds, and offer automated savings options.

Loss Aversion

• Workers perceive paycheck deductions as a bigger loss than the future benefit of free employer contributions.
• Solution: Reframe the narrative—highlighting the real loss as missing out on free matching dollars. Personalized projections showing how much money is left on the table can make the impact more tangible.

Social Proof & Normative Behavior

• Employees are influenced by what they believe their peers are doing—if saving more isn’t the norm, participation suffers.
• Solution: Use success stories and peer-based encouragement to establish higher contributions as the workplace standard.

Preventing Retirement Gaps Before They Start

Failing to maximize an employer match means missing out on more than just today's dollars—it impacts years of compounded growth and potential retirement security. By making small behavioral adjustments, plan sponsors can help employees take full advantage of employer contributions and set themselves up for long-term financial success.