Matching Contribution Plans

Michael Laurance  Finance Expert

Do you realize that about 1/3 of people that work for organizations that have matching contributions to 401k, 403b, 401a, 457 plans leave money on the table?  At least 1/3 of people who work in organizations that have free matching contributions fail to take advantage of this free money that their employers would gladly give to them!

Are you one of them??

Let’s look at this.

Many organizations – from corporations to schools to government – have gone away from defined benefit, or traditional pension, plans.  Most organizations no longer offer or pay for the pensions our parents or grandparents may have received.

Most organizations today use something called defined contribution plans in place of pensions…where YOU are the one making the contribution. 

Some organizations will match a part of the employee’s contribution.  Free.  No strings attached (except for having to work for that organization for a specified period of time such as four or five years).

For example, one plan I am familiar with will match your contributions dollar for dollar on the first 6% of your salary that you put into the defined contribution plan, in this case a 401k.  (In this example, if you make $50,000 a year and you agree to save 6% - $3000 – of your own money in the plan, the organization will match that $3000. You end up saving $6000.  That is the same as getting $3000 for free!!

Other organizations may not be as generous, and may only match 50 cents on the dollar, which is still a great deal!

Yet about one in three people fail to contribute enough to max out the matching portion of their employers plan.