Content about 401

July 25, 2012

In a 401(k) or similar defined contribution plan, the “threshold” is the limit at which participant contributions are matched by the employer. According to a new report, a higher match rate (for instance, offering an employer match of 80%, rather than 50%, of an employee’s contribution up to 6% of salary) has only a small effect on savings plan contributions. In contrast, raising the match threshold (for instance, matching 50% of an employee’s contribution up to 10% of salary, rather than up to 6%) has a substantial impact.