Nudge

Another common rule of thumb is to contribute to a retirement account the minimum amount necessary to get the full employer match. If the employer matches employees’ contributions up to 6 percent of pay, then many employees contribute 6 percent. If participants are behaving this way, then firms wanting to encourage employee savings might alter their matching formula to help workers. Changing the match formula from 50 percent on the first 6 percent of pay to 30 percent on the first 10 percent of pay would probably increase contribution rates. Those who use the match threshold as a rule of thumb would save more with a higher matching threshold.