Matching Contributions and Savings Outcomes: A Behavioral Economics Perspective
Including a matching contribution increases savings plan participation and contributions, although the impact is less significant than the impact of nonfinancial approaches. Conditional on participation, a higher match rate has only a small effect on savings plan contributions. In contrast, the match threshold has a substantial impact, probably because it serves as a natural reference point when individuals are deciding how much to save and may be viewed as advice from the savings program sponsor on how much to save. Other behavioral approaches to changing savings plan outcomes--including automatic enrollment, simplification, planning aids, reminders, and commitment features--potentially have a much greater impact on savings outcomes than do financial incentives, often at a much lower cost.
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