Company Match has Biggest Impact on Workers in Their 30s and 40s

BOSTON - February 26, 2009 - Fidelity Investments, the nation's No. 1 provider of workplace retirement savings plans, today released research that showed the existence of a company match is a critical component in driving higher participation rates in workplace savings plans, and when combined with immediate vesting, can result in double-digit increases.

The research shows that on average, offering a company match of at least 50 percent on every dollar of participants' contributions, up to 6 percent of pay, or what equates to 3 percent of the participants' salary, drives increased worker participation in plans by as much as 9 percentage points. Adding immediate vesting, which provides employees full entitlement to all plan contributions with no waiting period, was found to increase worker participation by another 2 percentage points.

"Many employers, both small and large, are facing tough decisions about employee benefits in this economic environment," said Scott B. David, president, Workplace Investing, Fidelity Investments. "We know that when companies eliminate the match to their workplace savings plans, almost half see a decrease in participation and deferral rates."

"This research shows that the very existence of any company match, even a small one, incents employees to participate more in their workplace plans, and those participation rates increase further in plans with more generous match programs," David said.

"And if this research can help inform employers who may be considering suspending their corporate match to better understand the impact of that decision, and possibly consider alternatives, such as reducing the company match versus eliminating it, then we might be able to keep more workers on the right path in their retirement savings efforts."

Company Match Makes Biggest Impact on Workers in their 30s and 40s

The research showed that the provision of a company match has the biggest impact on workers in their 30s and 40s, increasing their participation rates by 9 percentage points. Workers in their 30s had an average participation rate of 52 percent in plans where no company match is provided, versus 61 percent in plans with a match. Workers in their 40s showed similar rate increases, with participation at 61 percent in plans without a match versus 70 percent for plans with a match.

Among older workers in their 50s, participation rates increase 7 percentage points from 68 percent in plans with no match to 75 percent in plans when a company match is available. However, for workers in their 60s, the increase was minimal since participation rates tend to peak with this age group as they are most focused on retirement. The company match also had little to no impact for younger workers in their 20s since they are the least focused on retirement and most influenced by auto enrollment.

"Workers in their 30s and 40s are often challenged with multiple savings needs - whether it's saving for a child's college education, buying a first home, or supporting aging parents," said David. "The natural tendency is to delay saving for your own retirement since it's not viewed as an immediate financial need. Yet we know from experience that the danger in delaying is that workers get behind in their savings efforts, losing out on years of tax-advantaged contributions and compounded growth opportunities that they can't get back."

Company Match Rate Has Strong Impact on Workers' Deferral Rates

Fidelity's research also found that the match rate - or the minimum that the employee has to defer in order to get the full company match - has a strong influence on workers' deferral rates. About 30 percent of participants enrolled in their workplace plan deferred the same amount as the company match rate, enabling them to take full advantage of the company match.

Presence of Auto Enrollment Boosts Participation

Fidelity's research, which was based on 7,000 of the firm's record-kept plans, found that for those plans that do auto enroll, the participation rate increase is 6 percent. Only a small percentage of these plans currently utilize auto enrollment and normally only for new hires. Participation rates increase dramatically when all employees are eligible for auto enrollment, rising to as much as 89 percent.

Ways to Optimize Plan Design

Fidelity suggests companies consider the following plan design recommendations which can provide cost efficiencies for employers, while also maximizing retirement savings benefits for workers:

•		To get the maximum savings rate with no match, employers should make the plan available immediately to new hires, with auto increase and auto-enrollment at a 6 percent deferral rate.
•		To get the maximum savings rate with a match, employers should make the plan available immediately to new hires, match at least 50 cents on the dollar, and enable workers to be vested immediately, with auto increase and auto-enrollment at a 6 percent deferral rate.
•		Before moving to a full match suspension, employers may want to consider alternative cost savings approaches such as: • Change the match formula • Limit the population eligible to receive the company match, (e.g., limit participation to specific groups, such as lower-compensated employees, etc.) • Redefine what it means to be eligible for the match. (e.g., include an annual "hours" requirement, such as "must work at least 1,000 hours each year" to receive the match, or be "employed on the last day of the year" in order to receive an annual match) • Consider moving to a discretionary match for more funding flexibility. This enables employers to change the match at any time • Modify the frequency of the company match contribution (e.g., contribute to employee plans on a quarterly basis instead of monthly or weekly)

Fidelity believes it's important that employers factor in the unique demographics of their workforce when considering how to alter their matching program. As an example, companies with predominantly young employees may find they can drive higher participation rates in their workplace savings plans by making greater use of auto enrollment and scaling back on the match. Employers with an older workforce, closer to retirement and without the support of a defined benefit plan, should be judicious in their decisions and should consider all alternatives before taking action to reduce their matching program.

About The Research

Fidelity's Plan Design Research was conducted to determine the plan design components which have the greatest influence on retirement plan participation and deferral rates and to quantify their effect on participation rate, deferral rate, savings rate and match cost. Using a statistical modeling approach, Fidelity created two models. The first estimated the impact of demographic and plan design features on plan participation rates among the employee population, and the second estimated the impact of demographic and plan design features on deferral rates among plan participants. The research was based on Fidelity recordkept data from over 7,000 plans with 5.7 million eligible employees and 3.5 million participants. The data was summarized by grouping individuals in the same plan, salary range and age range and analyzed using a statistical method called the "Mixed Effects Model." The research was conducted from September to November 2008 and was based on plan data as of December 31, 2007.

About Fidelity Investments

Fidelity Investments is one of the world's largest providers of financial services, with custodied assets of over $2.6 trillion, including managed assets of over $1.2 trillion as of December 31, 2008. Fidelity offers investment management, retirement planning, brokerage, and human resources and benefits outsourcing services to 24 million individuals and institutions as well as through 5,500 financial intermediary firms. The firm is the largest mutual fund company in the United States, the No. 1 provider of workplace retirement savings plans, the largest mutual fund supermarket and a leading online brokerage firm. For more information about Fidelity Investments, visit Fidelity.com.

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