401(k) employer match rules: 10 things for employers to know

13 MIN READEditorial Policy

From game tables in the office and flexible work schedules to paid time off for passion projects, employers are continually coming to the table with new and exciting ways to keep workers happy and, ultimately, loyal to a company. However, one traditional benefit remains at the top of many employees’ must-have lists – the 401(k).

A 401(k): More important than ever

Benefits providers have begun to realize a good 401(k) plan shows that the employer is invested in its employees.” Business owners are taking note of this matter, and retirement accounts are becoming more of a priority.

According to an online survey conducted by OnePoll, retirement plans are the most wanted benefit after health insurance. However, one key piece that determines the value of the 401(k) to employees is an employer match, contributions that an employer makes into the account (and that may be in addition to any employee’s contributions).

If you do provide your employees with a 401(k) plan, employer match provisions are entirely optional. You can always decide to add this feature later, or you can elect to offer a partial match.

Additional reading:

Read on to learn the basics of employer matching contributions.

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10 things to know about employer 401(k) matches

1. What’s a typical employer match?

Regardless of whether or not automatic enrollment is part of a 401(k) plan, the matching amount contributed by employers varies greatly from one company to the next. According to 401(k) plan data analyzed by Vanguard, among plans with single- or multi-tier match formulas, the average match on employee contributions is 4.5% of their annual salary. Combined with the average employee contribution of 6.8%, the average total 401(k) contributions in 2022 were 11.3%. Though it’s slightly lower than the 11.6% reported in 2021, it still indicates  both employers and employees are focused on long-term savings.

2. Can I afford a match?

Offering a retirement plan with a match may be less expensive than you think: With modern providers, a 401(k) for an entire company may cost less than a single employee’s health insurance. Companies that offer some level of matching are likely to stand out among similar businesses that do not offer this benefit, giving a boost to recruitment and retention initiatives.

3. What companies offer the best employer match?

According to Ocho, when looking at the companies with the best employer matches in 2023, some companies offer up to 25% of compensation. Of course, participants are still limited to the annual contribution limits set by the IRS, but with such a large match percentage, employees can take advantage of a serious amount of “free money.”

Here are a few of the best company matches available today:

  • Blizzard: One of the nation’s leading video game developers also offers one of the nation’s best 401(k) plans. Blizzard offers its employees a full dollar-for-dollar match of up to 25% of employee compensation. Plus, to make it even better, employees are immediately 100% vested, meaning those employer-match dollars belong to the employees right away. 

  • Dollar General: The plan offered by Dollar General is very similar to Blizzard’s with the same dollar-for-dollar employer match of up to 25% of compensation, immediate eligibility to enroll, and immediate vesting.

4. When do employer matching contributions become vested?

As part of a company’s retirement savings plan, there may be rules pertaining to what’s known as the vesting schedule, that is, rules outlining whether contributions the employer makes to a participant’s account are owned by the participant immediately or not until after some waiting period. If there is a vesting schedule and, if the employee leaves before the contributions become fully vested, then some portion of the matched contributions would be forfeited to the plan.

Like matches, vesting schedules vary by employer. While some plans offer immediate vesting, others have a specified period of time (say, one year) before an employee is vested. Still, others take a graduated approach, with an increasing portion of the employer match becoming owned by the employee over time (say, 20% of the contribution with each year of service).

5. What do small employers do?

  • Nearly 80% of plans offer employer contributions according to Vanguard data from 2021, which can include profit-sharing contributions or employer matching contributions. 

  • 70% of small plans offering an employer contribution used a safe harbor design, according to Vanguard data from 2021. 

Source: Vanguard, How America Saves 2022, DC plan comparison: Small versus large employers

6. How is an employer match calculated?

Employer 401(k) match programs usually incorporate two figures when calculating a total possible match contribution: a percentage of the employee’s own contribution and a percentage of the employee’s salary.

Match TypeExample FormulaPercentage of Plans Using This Type
Single-tier formula$0.50 per dollar on the first 6% of pay70%
Multi-tier formula$1.00 per dollar on the first 3% of pay; $0.50 per dollar on the next 2% of pay23%
Dollar capSingle- or multi-tier formula with a $2,000 maximum6%
OtherVariable formula, based on age, tenure or similar vehicles1%

Source: Vanguard, How America Saves 2023

7. Are there rules for 401(k) matches?

The main rules around 401(k) matches revolve around contribution limits. Though employers typically set their own rules around their maximum contribution amounts, employer matching contributions in 2024 cannot exceed $46,000. 

The total employee and employer contribution limit into a 401(k) in 2024 is $69,000 ($76,500 if you’re age 50 or older). The employee contribution limit in 2024 is $23,000 if you’re under age 50, and $30,500 if you’re age 50 or older — that leaves a maximum of $46,000 for employers.

8. What is a safe harbor plan?

A Safe Harbor 401(k) plan is an employer-sponsored retirement plan designed to automatically pass key nondiscrimination tests required by the IRS. In this type of 401(k) plan, an employer is required to provide a contribution, which can be either:

  • A safe harbor matching contribution – This type of contribution is based on how much an employee chooses to defer and put into their 401(k). There are two matching options:

    • Basic match: Employer matching contributions are a 100% match on the first 3% of compensation plus a 50% match on deferrals between 3% and 5% (4% of total compensation).

    • Enhanced match: Employer matching contributions must be at least as much as the basic match at each tier of the match formula. A common formula is a 100% match on the first 4% of compensation.

  • A safe harbor nonelective contribution – Regardless of whether or not an employee contributes anything to their 401(k), the employer contributes  3% (or more) of that employee’s eligible annual compensation.

Want to learn how much a safe harbor plan would cost your business? Use our tool to calculate your costs.

9. Can you match Roth deferrals?

A Roth deferral allows a participant to contribute funds to a 401(k) plan that are taxed upfront, meaning withdrawals are tax-free upon retirement (if certain requirements are met). Not every employer offers a Roth deferral option. For those that do offer a match they must offer the same matching formula on Roth deferrals— though regardless of whether you defer pre-tax or Roth funds — or both — employer match contributions will be deposited into your account on a pretax basis. Learn more about Roth 401(k)s here.

10. Are employer contributions tax-deductible?

Yes, one of the tax benefits for employers is that contributions made on behalf of employees into an eligible retirement savings plan can be deducted on the company’s federal tax returns each year. Businesses offering first-time plans may be eligible for a $500 tax credit for the business, limited to the first three years of the plan and not exceeding the total plan expenses in any given year. These tax savings can help offset both the cost of offering a 401(k) plan and matching contributions made by the employer.

In addition to boosting hiring and retention, offering an affordable 401(k) with a match can provide small and medium-sized businesses with other business advantages as well. Read more about why small businesses should offer a 401(k) to their employees.

Additional employer match FAQs

What is the maximum employer contribution to an employee’s account in 2024?

Employers can contribute a maximum amount of $46,000 to an employee’s 401(k) in the 2024 tax year. The maximum contribution amount for employee contributions is $23,000, adding up to a combined employee and employer contribution total of $69,000. Though it’s uncommon, that means employers can actually contribute more to an employee’s 401(k) than the employee.

Employee contributions can vary based on the retirement plan's details, employee compensation limits, and more.

Additional reading:

Can an employer contribute to an employee’s account without the employee contributing?

Yes, this is known as a nonelective contribution. This type of employer contribution can be made regardless of whether the employee contributes first.

What are the employer benefits of making matching contributions to employee retirement plans?

One of the main advantages of employers making matching 401(k) contributions is the attraction and retention of top talent. As an important employee benefit, offering partial or full dollar-for-dollar contributions helps employers get paired with dedicated, motivated employees, which saves businesses money in the long run.

Employers also receive various tax benefits by contributing to employee retirement accounts.

Key takeaways

  • Like retirement plans, employer matching contribution provisions are not universal and may vary a lot among companies. Consult your plan administrator when determining what to offer, including the specific match formula and vesting schedule.

  • When an employer match is available, employees are more likely to make contributions as soon as they are eligible, creating a longer timeframe to accumulate savings.

  • Overall, a 401(k) match, despite its cost to the employer, can pay off over time for both companies looking to attract and retain talent as well as their employees.

Do your employees need guidance? Here’s a resource to help employees make the most of their employer match.

Get started with an affordable, full-service 401(k) plan.

Start a 401(k) with Human Interest

A Human Interest 401(k) plan can connect directly with your favorite payroll provider and has zero transaction fees.

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment education, and integration with leading payroll providers.

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