Saver’s Match: New employer 401(k) option that expands access for low-income workers

Raise your hands: How many employers out there want the best possible retirement-saving outcomes for your employees? It’s a no-brainer that employees’ well-being is a vital component of a company’s culture, and that their well-being extends to financial peace of mind. Retirement plans sponsored by employers play a huge role in helping Americans accumulate savings for their golden years, and plan features like employer matches give workers the opportunity to further maximize their savings.

An additional match for employees participating in their employer-sponsored plans—this time, from the federal government, as a provision in SECURE 2.0—will be rolled out in just a few years. The Saver’s Match Program, scheduled to replace the Saver’s Credit starting with the 2027 tax year, allows qualified individuals who participate in an employer’s 401(k) or other sponsored retirement plan, or who contribute to an IRA, to receive a 50% federal matching contribution of up to $1,000, to be deposited directly into the plan or IRA. That amount doubles to a maximum of $2,000 for plan participants or IRA contributors who are married and filing joint tax returns.

Saver’s Match eligibility extends to those taxpayers who have an adjusted gross income of $35,000 or under if they are single, or married but filing taxes separately. (Those participants who file taxes as head of household and have an adjusted gross income of $53,250 or below, and those with an adjusted gross income of up to $71,000 who are married and filing jointly, are also eligible.) A “savings sweetener” for low-income workers who participate in their employer-sponsored plan, the Saver’s Match is a benefit that can be claimed in addition to any employee contributions or employer match.

On the surface, $1,000 per year may not seem like much, but for low-income workers, every little bit helps—and over time, it can make a big difference to their saving outcomes for retirement. According to our research at Retirement Clearinghouse, based on data from the country’s largest retirement plan recordkeepers, a hypothetical 35-year-old employee who receives five consecutive Saver’s Matches of $1,000 would have an extra $29,274 in retirement income at age 65.

And the more time an employee has before retirement, the more that an extra $1,000 a year in Saver’s Match contributions would benefit them in the future. Our research found that a 25-year-old employee who receives five consecutive $1,000 Saver’s Matches would see those payments yield an additional $54,951 in retirement income when they are 65.

A positive incentive for improving retirement-saving behaviors

The Saver’s Match is also likely to encourage more employees who don’t currently participate in their employers’ sponsored retirement plans to begin doing so—and also encourage those who aren’t taking advantage of employer 401(k) matches to begin doing so.

A nationwide survey of plan participants eligible for the Saver’s Match, conducted by Retirement Clearinghouse and Boston Research Technologies earlier this year, found that 89.9% of eligible Saver’s Match recipients would be very or somewhat likely to contribute more to their employers’ plans in order to receive a larger Saver’s Match contribution.

And, of the eligible Saver’s Match recipients who are not currently saving for retirement by participating in an employer’s plan, 73.5% stated they would be very or somewhat likely to begin doing so in order to receive a Saver’s Match contribution.

In addition, the survey reported that, consistent with research undertaken by the Employee Benefit Research Institute (EBRI), the Saver’s Match Program would entice an additional 8.5 million eligible savers who are not presently saving for retirement to change that and begin participating in their employers’ plans, in order to obtain the matching contribution.

Closing the wealth gap for minorities

Recordkeeper and EBRI research indicates that 18.6% of all employees who participate in their employers’ retirement plans are eligible for Saver’s Match contributions—but 25.6% of Black and Hispanic plan participants fit Saver’s Match Program criteria. These minority workers’ higher-than-average Saver’s Match eligibility also translates into higher-than-average probability that the Saver’s Match will encourage them to improve their saving habits.

The survey of eligible recipients found that 93.6% of Black workers and 92.3% of Hispanic workers saving for retirement would contribute more to their employers’ plans to receive the Saver’s Match—even higher than the 89.1% of eligible White workers who expressed the same sentiment.

And among Black Americans and Hispanic Americans not currently participating in an employer’s defined contribution plan, the survey reported that 78.2% of Hispanic workers and 76.9% of Black workers in this category would be more likely to participate in a plan if their employer offered one, in order to obtain the matching federal contribution under the Saver’s Match Program.

How employers can prepare for the Saver’s Match Program

The Saver’s Match Program will be available as a benefit in tax years following 2027, which may seem like a long way off today, but time is not infinite. The Hare found that out the hard way when the Tortoise beat him in Aesop’s Fable about their race.

The mechanics of how employers’ plans will be able to receive and deposit their participants’ Saver’s Match contributions remain unclear at this point—and at any rate, the specific process will fall under the bailiwick of the plan recordkeepers. Nevertheless, plan sponsors still have an important role to play in preparing for the Saver’s Match Program.

First, employers can begin educating employees who have the adjusted gross income which makes them eligible for Saver’s Match contributions today—about the impact Saver’s Match contributions can make toward their retirement-saving outcomes, and about the importance of participating in employer-sponsored plans. The same message about taking advantage of employer matches in 401(k) plans applies here: Don’t leave free money on the table.

Second, the survey of eligible Saver’s Match recipients found that most of the savers who can receive federal matching contributions comprise a highly mobile segment of the workforce. According to the survey, 15% of retirement savers who are employed had less than a year of tenure, as of January 1, 2024, at their current employer, and 8.6% of eligible Saver’s Match recipients had changed jobs since that date.

Related: Have the conversation: 401(k) plan changes can close the racial retirement savings gap

Employers can accommodate these eligible savers by ensuring their plans can accept rollovers of IRAs—to which mobile workers often contribute between jobs. To make sure they’re ready when the Saver’s Match Program replaces the Saver’s Credit, employers should check with their recordkeepers about this rollover capability in 2024, instead of in 2026 or 2027, as it would require a plan change that could take time to implement.

Defined contribution plans, and their accompanying employer matches, can help employees get closer to saving the nest eggs required to generate the income they need to truly enjoy retirement. Employers can also take the lead in empowering the employees they value to further increase their retirement savings, by encouraging them to take full advantage of the upcoming Saver’s Match Program.

Spencer Williams is CEO of Portability Services Network, an industry utility facilitating plan-to-plan asset portability, and Retirement Clearinghouse, a portability solutions provider.