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...do I recommend a set amount paid by the organizatin to each employee per year - either a flat sum, or a percentage of salary? Or, do I recommend that the Board match employee contributions - up to a certain dollar amount, or a percentage of salary? or some combination of the two? And what percentages are commonly used?

My employer matches 50 cents on the dollar for the first 3%.

Fredinseoul said:
Matching 50% of the first 10% is common. It is not so much, but it can grow for an employee quite nicely. There are other variations on the percentage. This does have a disadvantage of paying higher amounts with higher salaries.

Matching up to 10% sounds high to me, but perhaps that's because my boss is cheap ;-)

I would frankly favor a plan that matches 100 cents on the dollar of a lower percentage (like 2-5%), and here's why:

In our 401k, we often don't meet the federal rules for 'highly-compensated' employees, because all of our highly-compensated employees contribute, while only some of our lower-compensated employees do. When we don't meet the standards, the excess contributions are disallowed for the highly compensated employees. In some years this has resulted in 75% of my own 15% contribution being disallowed (ouch!)

IMO, if you match 100% on the first percentages (like 2-5%), you are far more likely to be able to convince lower-compensated employees to participate when you point out that they are effectively doubling their money from day 1. Higher participation from the lower-compensated employees would result in a greater likelihood that you'll pass the federal test. It is also a better deal for the lower-compensated employees than a 50% match on the first 10%--not many on low salaries can afford to contribute 10% of their salary!

One caveat: I don't know if 403b's are subject to the same Federal tests for highly-compensated employees.

Here is a link to a Vanguard DC Plan Survey in PDF format--Page 29 shows participation rates for various groups, while Page 30 states that the median savings rate for plan participants is 6%. Pages 70 and 71 are of particular interest regarding employer matches:

https://institutional2.vanguard.com/VGApp/iip/Research?Path=PUBRR&File=RetResHowAmericaSaves2004.jsp&FW_Activity=ArticleDetailActivity&FW_Event=articleDetail&IIP_INF=BRRetResHowAmericaSaves2004.jsp#

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