Workers are losing out on 401(k) matches

U.S. workers are losing at least $24 billion in retirement plan contributions each year by failing to take full advantage of company matches, according to recent research by 401(k) adviser Financial Engines.

One in four retirement plan participants misses out on some or all of the match, costing themselves an average $1,336 annually, said the firm, which reviewed the savings records of 4.4 million employees at the 553 companies using its services.

The missed amounts ranged from less than $100 to more than $20,000 for some highly paid, richly matched workers.

The Financial Engines study is the first to estimate the dollar amount of foregone matches, according to Greg Stein, the company's director of technology.

Only about half of American workers have access to a retirement plan and just under 41 percent participate in them, according to the Employee Benefit Research Institute, a Washington, D.C.-based nonprofit group.

The vast majority of 401(k) plans offer to match employees' contributions, most commonly matching dollar for dollar up to 6 percent of annual pay, according to payroll processor Aon Hewitt. The second-most-common match offers 50 cents for each dollar employees contribute, up to 6 percent of pay.

Younger and lower-paid workers are most likely to miss out on matching funds, Financial Engines found. Those paid less than $40,000 are four times more likely to get less than the full match, compared with those earning more than $100,000 (42 percent vs. 10 percent). Meanwhile, employees under 30 were twice as likely as those over 60 to miss out (30 percent vs. 16 percent).

Youthful ignorance can be the most costly, since the missing money would have had decades to compound.

Employers could shrink the amount of money left on the table by automatically enrolling workers in retirement plans at a default rate that captures the full company match — considered a "best practice" in the employee benefit field, Stein said. Alternatively, the default rate could be lower but automatically escalate over time.

Automatic enrollment has significantly increased employee participation in retirement plans, but Vanguard's study of 2 million retirement plan participants found the average savings rate was 6.6 percent for those with automatic enrollment but 7.5 percent for those with voluntary enrollment.

Liz Weston is a Reuters columnist.