Why Workers Leave Matching Dollars on the Table

Ironwood Retirement Plan Consultants • February 10, 2025

A 2023 Vanguard study found that a quarter of participants deferred less than 4% of their income — generally below the threshold to maximize an employer match. While financial constraints play a role for some, psychological factors can also contribute. Understanding these cognitive biases can help explain why workers forfeit free money — and highlight strategies to help.


Present bias and hyperbolic discounting. People often prioritize immediate rewards over long-term benefits, driven by two related but distinct tendencies: present bias and hyperbolic discounting. Present bias causes employees to favor immediate gratification over future rewards, including employer matches. Hyperbolic discounting expands on this by showing how people increasingly undervalue rewards as the delay to receiving them grows longer. To help address present bias and hyperbolic discounting, employers can frame matches as “an instant 100% return” on contributions. Tools that reduce the psychological distance of future rewards — like visualizing one’s future self — can also help participants better connect with the long-term value of saving.


Anchoring bias and the status quo. Anchoring occurs when employees rely too heavily on initial information — like default rates — while the status quo bias can result in a preference for maintaining the current state, even if better options are available. Defaults can serve as psychological anchors, leading participants to assume these rates are sufficient — even if they fall short of the amount needed to max out their match. Employers can address this by raising default rates and adding auto-escalation features to increase savings over time.


Paradox of choice. When employees are faced with too many options — such as fund selections or allocation possibilities — they may feel overwhelmed and avoid making decisions altogether. Streamlining investment menu options, and offering simplified, automated paths to maximize matches, can help minimize the role of choice in the equation. You can also provide education around target date funds, framing them as a simpler, “one-decision” strategy.


Loss aversion. This behavioral tendency leads people to feel the pain of losses more strongly than the pleasure of equivalent gains. For workers, the psychological weight of “losing” immediate paycheck money can outweigh the future benefits of the “free” match. Plan sponsors can counteract this by flipping the script and reframing the real loss as a missed financial opportunity — that is, what participants stand to lose in terms of the company match. Providing employees a personalized projection of missed matching dollars at their current deferral rate may stoke some healthy financial FOMO, and make the perceived cost of inaction more concrete and immediate.


Social proof and normative behavior. Employees are influenced by their perception of the financial habits of their peers. If maximizing the employer match isn’t seen as the norm, participation can suffer. Promoting retirement saving through success stories can help establish higher contributions as the standard more workers strive toward.


Preventing Retirement Gaps Is Easier Than Closing Them


When employees fail to max out their match, it’s not just today’s dollars they lose. But with proactive steps, you can potentially preserve years of compounded growth and help prevent a retirement gap before it happens.


Sources

Other Benefits Developments

By Ironwood Retirement Plan Consultants • October 21, 2025
Explore emerging employer-benefit trends—from rising focus on drug-pricing transparency and PBM oversight to holistic wellness and reproductive-health programs—to stay ahead of what’s next in total workforce support.

Rising Markets Don’t Lift All Participants

By Ironwood Retirement Plan Consultants • October 17, 2025
Even though markets are climbing, many retirement plan participants are still falling behind. Learn why segments such as young employees, women, and low-income workers aren’t benefiting equally — and what employers can do to close the gap.

PEPs Gaining Ground, But One Size May Not Fit All

By Ironwood Retirement Plan Consultants • October 13, 2025
Discover how pooled employer plans (PEPs) are gaining traction among small-to-mid-sized employers—the benefits, the trade-offs, and why one size doesn’t fit all when it comes to retirement plan design.

Participant Corner: Retirement May Be Your Next Adventure

By Ironwood Retirement Plan Consultants • October 9, 2025
Retirement shouldn’t feel like the finish line — discover how to view it as your next adventure, explore new passions, part-time work or creative pursuits, and design a fulfilling chapter that goes beyond ‘stop working’.

Participant Corner: 3 Ways to Retire with Confidence

By Ironwood Retirement Plan Consultants • September 25, 2025
Feeling overwhelmed by retirement planning? Discover three straightforward strategies—start saving now, select the right investments and boost your future income—that can help you retire with confidence no matter your age.

The Weight of Fiduciary Responsibility for Helping Retirement Plans Provide the Best Financial Outcomes for their Participants

By Ironwood Retirement Plan Consultants • September 16, 2025
Explore how fiduciary retirement-plan advisors face the highest legal standards under ERISA, the rising litigation risk, and the increasing importance of documented processes and technology to deliver better outcomes for plan participants.

Supreme Court Lowers Bar for ERISA Lawsuits

By Ironwood Retirement Plan Consultants • September 12, 2025
A recent Supreme Court decision makes it easier for plaintiffs to bring ERISA-related lawsuits, increasing litigation risk for retirement plan fiduciaries—read what every plan sponsor should know.

Opening the Door Wider to PE

By Ironwood Retirement Plan Consultants • September 3, 2025
With only 2.2% of 401(k) plans offering alternatives, an executive order is pushing broader access to private-equity investments — but plan sponsors must still navigate liquidity, fees and fiduciary obligations.

Rethinking Pension Surplus Dollars: Avoiding the Termination Trap

August 27, 2025
As rising interest rates have reshaped pension funding dynamics post-COVID, many corporate defined benefit (DB) plans are now experiencing significant surpluses. According to actuarial firm Milliman, the 100 largest corporate DB plans, in aggregate, held an estimated $62 billion in excess assets as of December 2024. Under existing tax law, defined contribution (DC) plan sponsors have limited options for using these surplus funds because, as a rule, accessing the excess assets requires terminating the plan. However, two new proposals from the American Benefits Council could offer an alternative path forward. In letters sent to the chairs of the House Committee on Ways and Means and the Senate Committee on Finance, the council outlined legislative recommendations that would allow employers to repurpose pension surpluses without requiring them to terminate their DB plans. Unlocking Surplus Dollars from DB to DC Plans The first proposal would permit companies to transfer excess assets from an overfunded DB plan into a DC plan, such as a 401(k), for the benefit of current employees. This would enable sponsors to keep the pension plan intact, while still making use of the surplus to help enhance employee retirement security in other ways. Support for Active Employee Health Coverage The second proposal to the committees focuses on retiree health accounts. Under its recommendations, employers would be permitted to redirect the surplus assets in overfunded DB accounts toward funding health care benefits for their current, active employees. Both proposals are seeking to modernize the rules governing surplus DB asset use while preserving the integrity of existing defined benefit plans. They would also help prevent what some policymakers might view as a “double dip” — repurposing surplus dollars into new benefit obligations while claiming a second tax deduction. The proposed changes would limit any future deductions on amounts already receiving favorable tax treatment, mitigating potential revenue loss to the federal government. Implications for Plan Sponsors If enacted, both of these provisions would provide sponsors with greater flexibility to optimize benefit offerings without dismantling well-funded pension plans. For many companies, this could mean retaining their DB plan structure while giving them more options to address their evolving workforce needs. The proposals are in early stages and would require legislative action if they were to be enacted into law. Still, they reflect growing interest in revisiting pension policy to reflect today’s funding realities as well as workforce and plan sponsor needs. Source: https://www.americanbenefitscouncil.org/pub/?id=ed02fe69-b2ef-6632-a9f6-84a8a70349c9

Engaging the TikTok Generation on Retirement

August 18, 2025
Nearly a quarter of all Gen Z employees aren’t enrolled in a company retirement plan, according to BenefitsPro. That’s three times the rate of millennials, Gen X, and Boomers. In addition, 12% of Gen Zers don’t take advantage of any workplace benefits at all, twice the rate of other generations. Here are ways plan sponsors can help prevent their youngest workers from experiencing financial FOMO by sitting on the sidelines of their employer-sponsored retirement plan. Tailor plan design. Plan sponsors may improve engagement by offering immediate eligibility for participation and matching, automatically enrolling new hires at modest deferral rates with auto-escalation features, and linking student loan payments to employer contributions. Emergency savings features and Roth options may also resonate with this cohort, helping them manage both short- and long-term needs. Use short-form videos. Provide education about the benefits of 401(k) participation via TikTok-style videos on internal platforms or social channels. This generation may prefer fast, engaging content over longer-form articles. Highlight flexibility over distant retirement dreams. Frame contributions as a step toward financial freedom. This could mean taking career breaks or more travel experiences — not just retiring at 65. When young employees can see how retirement savings fuel a lifestyle they care about, they’re more likely to start now. Make enrollment feel like an app. Use mobile-first, intuitive interfaces for benefits enrollment. Gen Z expects user experiences to feel more like Apple or Amazon, not clunky HR portals. Reduce friction in the user digital experience. Plan sponsors should work with providers who offer enrollment options that mirror the apps Gen Z uses daily. Offer purpose-driven messaging. Emphasize how financial wellness supports independence and the ability to enjoy a greater breadth of life experiences, or lets them contribute to causes that matter to them. This generation often views money as a means to impact, not just for the purpose of accumulation. Purpose-oriented messaging is likely to resonate more with this cohort. Integrate with onboarding gamification. Build benefits participation into early-stage onboarding with milestone achievements or rewards. Gen Z may respond well to gamified processes. Badges, or tiered goals can nudge participation. Even something as simple as a “first contribution” celebration badge can provide a motivational spark. As Gen Z enters the workforce, it does so during a time of economic uncertainty, high student debt, and rising housing costs. They face delayed financial milestones and a different perception of long-term planning. Many also began their careers during the COVID-19 pandemic, shaping a worldview that values flexibility, purpose, and digital fluency, though they still appreciate human guidance. Helping Gen Z build financial resilience today and setting them up for a more secure financial future tomorrow requires the willingness to rethink how retirement planning is communicated and delivered — because the habits they form now will shape their future and the retirement landscape for decades to come.  Sources: https://fortune.com/2025/05/18/gen-z-missing-out-free-money-401k-match-company-policy-retirement-savings https://www.benefitspro.com/2025/03/03/23-of-gen-zers-arent-enrolled-in-the-company-401k-3-ways-to-engage-this-younger-generation/