3 Keys to Successful Stretch Matches

3 Keys to Successful Stretch Matches

May 14, 2019
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Most market analysts predict that in the next decade, we’ll see lower stock market returns than we have these past 10 years. So, to end up with enough money at retirement, your participants may need to make larger contributions. The math is simple: If you have lower rates of return, you need higher deferrals to make up the difference.

Moving to a stretch match may help, but it needs to be implemented thoughtfully. I’ll give you a good example, a manufacturing client of ours that recently did it.[1] For years, this sponsor faced the challenge that a lot of its employees felt they needed every dollar in their paycheck to get by, and that they couldn’t save much for retirement.

Here are three tips for a successful move to a stretch match:

Increase the match formula

Deciding on the right match formula is an art. You have to balance doing something that works for your budget with making a move that drives participation and deferrals up—without your employees seeing the match change as a takeaway.

At ARP, we’ve got an unusual approach to doing a stretch match. It started with me putting myself in a participant’s shoes: Many Americans feel like their budget crunch limits their ability to save, and they defer just enough to get their employer’s full match. If that match changes from 100% on 5% to a stretch match of 50% on 10%, for example, it’s not surprising if they react negatively. Now they need to double their deferral to get the same match contribution.

So we talked to our manufacturing client about making a slightly higher match contribution: Instead of going from a 100% match up to 5% to a 50% match up to 10%, the employer went with our suggested move to a 60% match up to 10%. We’ve seen with other clients that a small match increase, combined with the slightly lower participation that a stretch match can bring, usually means that an employer’s match expense stays about the same or increases slightly.

Use auto-design features strategically

A Vanguard paper published in December 2018, “Stretching the match: Unintended effects on plan contributions,” reached some troubling conclusions about stretch matches. Using data from 328 plans, Vanguard found that contribution rates decline by 25% to 50% when a match gets stretched. But the research included only plans with voluntary enrollment, and not plans that do automatic enrollment.[2]

Some sponsors, like those with a high-earning professional workforce, can do a stretch match successfully without also utilizing auto enrollment. But most of the time, stretch matches get better results when a plan also uses automated design features. And I’m seeing hesitant sponsors start to change their tune on auto enrollment. We now have lots of industry data showing that employees not only do not push back when their employer uses auto features, they appreciate the helpful nudge to save more for their retirement.

So, at the same time as our manufacturing client moved to the new match formula, they reenrolled participants at a match-maximizing 10% deferral level, unless they opted out of it. Not many participants decided against it, it turns out. Before the reenrollment the plan had an 85% participation rate among full-time employees, and 80% stuck with participation at the 10% level.

Emphasize the upside

When we talked to our manufacturing client’s employees about moving to a stretch match, we spoke about the change as an enhancement to their retirement plan. We explained that they’ll get an increased total contribution to their retirement account: Yes, employees will have to put in more money to get the full match, but they’ll also get more match money from their employer. Many people are cool with a change like that, and many already realize that they need to save more.

Timing also matters in a transition to a stretch match. Our manufacturing client saw its second straight year of record profitability and planned to do a pay increase on April 1. So, we suggested coupling the pay increase with the implementation of the match changes and reenrollment. When you roll a stretch match out at the same time as pay raises, employees may see little or no drop in their take-home pay.

Our manufacturing client tied the pay raises and match boost into a communications message about how the company’s higher productivity and good financial results led to these moves. The employer told employees that the pay raise and match increase demonstrate how much it appreciates that its staff made the record profitability attainable. That’s good messaging that helps employees appreciate their 401(k)–and their employer–more.



We believe that a thoughtful matching formula is extremely powerful. However, finding the right formula that fits your company’s budget and goals is an art.  To discuss the tips in this article or for help creating a match for your company, contact us today!  


This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

[1] Example used in this article may not be representative of the results of all clients and are not indicative of future performance or success.

[2]Young, Galina, and Jean A.Young. “Stretching the Match: Unintended Effects on Plan Contributions.” Vanguard Research, Dec 2018.