401(k) Match Employer Contributions Matter

It’s a common question among employers who decide to offer an employer match with their 401(k)—or are considering adding a match—to wonder how much they should be contributing to employee accounts. There isn't one right answer, but by looking at industry averages and thinking about how you'd like to structure your match, you can develop an employer match strategy that helps accomplish the goals of both your business and your employees.

Employer Matching Programs

When thinking about an overall employer match rate, one major factor to consider is how your match style fits with your business goals:  

  •      Dollar-for-dollar: In the most straightforward arrangement, an employer will match employee contributions dollar-for-dollar up to a certain percentage of the employee’s total compensation. This has recently become the most common employer match arrangement.1
  •      Stretch: In a “stretch” contribution setup, the employer matches 50% of employee contributions up to a certain percentage of the employee’s total compensation. For example, an employer might do a 50% match up to 8% of an employee’s compensation, for a total maximum contribution of 4% of the employee’s salary.
  •      Dollar amount: In this arrangement, an employer will determine a set dollar amount to contribute to each employee.

Determining which style to use for your employer contribution will inform how your match works, and what total amount your employees will need to contribute in order to receive their full match from you.

Average 401(k) Match

Over the years, industry averages for both employer match style and contribution rates have evolved. As recently as just a few years ago, the stretch arrangement of 50% employer match was the most common, and during the same period the average employer match contribution rate was 6%.2 As the industry has started to transition towards dollar-for-dollar as the most common arrangement, average contribution rates have started to adjust accordingly, moving to 3%.3

That said, the most recent trends indicate that employers are interested in increasing their spend on 401(k) match contributions. In 2016, the average employer match contribution was 4.7%, up from 3.9% in 2015.[4] One possible reason for this could be competition for talent. This is especially evident in industries or markets where this labor competition is fierce; Microsoft, as an extreme example from the world of enterprise companies, has recently committed to matching half of employee contributions up to federal limits as a way to retain their top employees and attract new talent away from the competition.[5]

While it’s true that employer contribution rates can vary widely, the most recent data suggests that the most common employer match contribution rate is dollar-for-dollar on the first 6% of an employee’s salary. If you’re looking for an average range to follow, a 3% to 6% total employer contribution would be in line not only with this average, but with the trends we’ve seen in recent years.

Regardless of how you decide to structure employer contributions, a match can often act as a catalyst to greater engagement in the plan. Nearly all of the small and mid-sized businesses (97.1%) we serve that offer a match have seen employee contribution rates that are higher than the maximum match percentage offered—by an average rate of 5.51%.6 Consider that the average contribution rate by American workers is 6% in total, and it’s clear that not only are employees saving more when a match is offered, but they’re doing so by larger margins.7

Help your Employees Save for Retirement

For employers who can choose to offer an employer match, one place to look for inspiration about setting a match rate is the data. More than any other financial benefit, employees want 401(k) matching from their employers, with 72.5% preferring employer match over other benefits.8 There’s also a strong correlation between employees who say they are satisfied with their defined contribution plan (a type of retirement plan in which a company contributes money at a certain rate each year as a benefit to employees, like a 401(k) with employer match) and those who intend to stay with their current employer.9 Match rates play a significant role in determining overall employee satisfaction with a retirement plan, which only underscores the importance of offering competitive match rates for employers looking to compete for talent.

Ideal 401(k) Match

It’s a common misconception among employees that they should only save money into their 401(k) accounts up to the match rate set by their employer. If, for example, you choose to follow the industry average of a dollar-for-dollar 6% match, some employees might interpret that to be the mark they should aim for when it comes to determining how much they save.

According to some industry experts however, employees should be saving even more than that if they are to be ready for retirement—5% early in their careers, 10% later on, and 15% as they approach retirement. This is leading some of those experts—like the authors of a Harvard study—to suggest that a 50% match up to the first 12% of an employee’s salary is a more ideal setup, as it motivates employees to save more and reach that 15% target without actually costing the employer anything more than a dollar-for-dollar 6% match. Between this sort of employer match setup and plenty of educational resources and support from your 401(k) service provider, employees will have a great starting point to understand, save for, and reach their retirement goals.

As you continue to think about the right contribution rate for your 401(k) employer match, remember that your contributions are first and foremost a benefit to your valued employees. Balance the industry averages and data with your goals for both your employees and your business, and you’ll find a contribution rate that’s right for your employees needs—and yours.


[1] https://www.shrm.org/ResourcesAndTools/hr-topics/benefits/Pages/bigger-401k-matches.aspx

[2] https://www.investopedia.com/articles/personal-finance/120315/what-good-401k-match.asp?adtest=rira-layout-bttn-v1

[3] https://www.investopedia.com/articles/personal-finance/120315/what-good-401k-match.asp?adtest=rira-layout-bttn-v1

[4] https://www.wsj.com/articles/u-s-companies-have-a-new-401-k-fix-spend-more-1500283804?mod=trending_now_2

[5] https://www.wsj.com/articles/u-s-companies-have-a-new-401-k-fix-spend-more-1500283804?mod=trending_now_2

[6] Fisher Investments 401(k) Solutions Enrollment Data as of 12/14/17.

[7] https://www.fool.com/retirement/2017/01/15/average-americans-401k-contributions-by-age-and-in.aspx

[8] https://www.limeade.com/content/uploads/2016/12/Workplace-Well-Being_FINAL.pdf

[9] https://www.towerswatson.com/en-US/Insights/Newsletters/Americas/insider/2005/how-do-retirement-plans-affect-employee-behavior

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