How do you restructure a 401(k) match without it landing as a pay cut?

If finance needs the saving, be honest that it is a saving. The stretch match is defensible only if you pair it with automatic escalation, so people reach the new threshold without having to act. We moved everyone below 8% up by 1% a year with an opt-out, and 84% stayed in the escalation.

Your real issue is the 38% in the warehouse, and a stretch match makes that worse rather than better. People on hourly pay who cannot spare 4% are not going to find 8%.

What we did instead at a similar business was keep the match formula, add a 2% non-elective contribution for everyone under a pay threshold, and fund it by introducing a two-year vesting schedule on the match. Turnover in the first two years was high enough that forfeitures covered about 80% of the new cost. Participation among hourly staff went from 41% to 66% once auto-enrolment at 3% was added. Nobody saw a number go down.

A caveat on vesting schedules as the funding source: it worked for the poster above because early turnover was high. If you are also trying to fix retention you are funding the plan from the thing you want to reduce. Model it at your target turnover, not your current rate.

Really useful, thank you. I took the vesting idea to finance with both turnover scenarios. Even at target turnover it covers roughly half, and they have agreed to drop the stretch match. We are going with auto-enrolment at 3%, escalation to 6%, and the match formula untouched.