EMPLOYER MATCH

A Powerful Tool to Boost Employee Retirement Savings and get business tax benefits

Employer match is one of the most common 401(k) plan features. Simply put, employer match is where an employer matches their employee’s 401(k) contributions.

Benefits of an Employer Match

Many small businesses decide not to match their employee contributions in their 401(k) plans to save on costs. However, there are many benefits for doing an employer match both for your employees and your business.

Tax Benefits

The employer reduces its taxable income and the money grows tax-free in the employee's 401(k) account until it is withdrawn.

Flexibility

You can decide how much you want to match and what the vesting schedule should look like based on what’s best for your business.

More Employees On Track for Retirement

Employee retirement savings can grow quicker with your match.

High-quality Employees

An important feature of a robust benefits package, it helps attract top talent employees, especially with higher matching contributions.

Increased Employee Participation

Get increased employee 401(k) participation by matching your employees' contributions. It encourages employees to save more and often is the extra push they need to participate in their company-sponsored retirement plan.

Successful Annual Testing

Pass your annual 401(k) compliance testing by increasing plan participation rates. An employer match typically increases employee participation rates, making it easier to pass annual non-discrimination testing.

Protect Your Employer Match with a Vesting Schedule

Employer matches are often subject to vesting schedules. Vesting schedules show the time period that an employee has to work for a company before they have access to the employer match dollars. Generally, employer match contributions can grow in a 401(k) account but cannot be withdrawn or rolled over until they’re 100% vested.

Employer match 401k
Employers can match their employee contributions in several different arrangements

Perhaps the most common is for an employer to match their employees' contributions dollar for dollar, up to a certain percent of the employee's total income but usually in the range of 3% to 6%.

Another popular option is for employers to match 50% of their employees' contributions up to 6% of an employee's income, adding an additional 3% to an employee's total savings rate.

A less common arrangement, an employer matches their employees' contributions to a certain dollar amount.

Employer matches are deposited into an employee’s 401(k) account on a pre-tax or post-tax basis (in the event that an employee has a Roth 401(k)). Although there is not a specific limit to how much an employer can match each employee’s contribution rate, there is a total limit for combined contributions into an individual’s 401(k). Combined contributions from both employer and employee can be no more than $54,000 or 100% of compensation, whichever is less, for the 2017 tax year.