Average 401(k) Match

LAST REVIEWED Jun 08 2020 8 MIN READ

By The Human Interest Team

Did you know that the average 401(k) employer match in the United States is 4.7%? Many large companies automatically enroll their employees into an employer-sponsored retirement plan, but the employer match varies from company to company.

Approximately 68% of 401(k) plans allow employees to participate from the time they enroll, but not all of them are eligible for an employer match. The majority of employers, about 86%, do provide some type of match, according to the Plan Sponsor Council of America. Others require you to have at least one year of service to qualify for an employer match contribution plan.

The Impact of an Average 401(k) Employer Match on Your Retirement Savings

The Internal Revenue Service (IRS) sets the upper ceiling for 401(k) contributions. You can contribute up to $19,500 per year to your 401(k) plan. If you are 50 years or older, you qualify for a catch-up contribution of up to $6,500 per year, according to 2019 IRS guidelines.

An employer match in a 401(k) plan refers to the amount an employer contributes to match a portion of an employee’s contribution. The employer match, which was as low as 3 to 4% before 2011, has been steadily increasing.

Taking the employer contribution into account, you can dedicate as much as 13.5% of your salary on average to your 401(k) plan.

According to a report published by the Stanford Center on Longevity, if you start setting aside 10 to 17% of your income when you are 25 years old, you will be financially in a good position to retire by the time you are 65 years old. About 25% of American adults do not have any retirement savings. How much you should save for retirement depends upon your financial goals and individual circumstances, but many financial experts recommend saving up to 15% of your annual income for retirement.

401(k) Match Amounts

Not all 401(k) plans are designed the same. An employer match contribution is one way 401(k) plans can differ from company to company. Whether your employer offers a 401(k) match or does not make any match at all could make a difference of about several thousand dollars by the time you decide to retire.

Employers do not match your entire contribution. For example, if you contribute 50% of your salary to your 401(k) plan, your company may not contribute an equal amount to your 401(k) account.

On average, companies make an average 401(k) match of 4.7% of your salary, provided you contribute that percentage yourself. In other words, if you contribute 4.7% or more of your salary in your 401(k) account, your company will contribute a maximum amount of 4.7%. 

Companies use different formulas for computing an employer match. The most common formula is to match 50% of what you contribute: 50 cents for every $1 of your contribution. Some companies match 100% of your contribution, dollar for dollar, but the maximum match is usually lower in these cases, such as 3% of your pay.

You may be required to contribute more to benefit from the maximum employer match. In other cases, you may have to pay high maintenance fees toward your 401(k) plan.

According to the National Compensation Survey conducted by the U.S. Bureau of Labor Statistics,

  • Only 56% of companies offer a 401(k) plan.

  • Almost half of these companies (close to 49%) do not match an employee’s contribution.

  • About 41% of companies match up to 6% of an employee’s salary.

  • Only 10% of companies make an employer match of 6% or more of an employee’s salary.

  • The median employer match is 3% of an employee’s salary.

Regardless of the employer match percentage, you may want to contribute the minimum amount required to qualify you for the employer match.

What happens if you are pursuing a job at a company that does not offer an employer 401(k) match? Upon acceptance of the position, you could negotiate a higher salary and use a portion of your earnings to make a greater contribution toward your 401(k) plan.

401(k) Company Match Computation

Let’s say your company offers you an annual salary of $50,000, and you contribute 5% of your salary ($2,500) to your 401(k) account. Getting an employer match of 5% from your employer doubles your contribution to $5,000. Now let’s assume your company does not offer any employer match. In this case, you would not receive an additional $2,500 every year. Over a period of 20 years, you would not have been able to receive $50,000 matched from your original contribution. If you take into account the growth of your investment during these 20 years, you could be missing out on more than $100,000.

You may want to keep a target contribution of 10% of your pay, including your employer match, in mind when you are thinking about how much you want to contribute to your 401(k) plan. As your salary increases based on performance reviews or other measures, you can consider contributing 10% of your salary.

Managing Your 401(k) Plan

On average, many employer 401(k) plans allow you to invest in 19 funds comprising domestic and foreign stocks. Many 401(k) providers also invest in domestic index funds. The higher the number of investment options your retirement fund manager offers, the better the chances you stand to find a good-performing option. A 401(k) plan management company also charges fees for managing your funds. You may want to make sure that the fund management fees are affordable for your needs.

Some 401(k) plans also offer a self-directed option. These types of plans allow you to manage your funds on your own in a manner similar to a stock brokerage account.

Human Interest provides low-cost, full-service retirement plans to more than 2,000 small and medium-sized businesses. The administrative aspects of our plans are fully automated, and we can get you started in only a few minutes. We would be happy to help you with more advice and information on 401(k) plan options suitable to your needs. Contact us today for a free consultation.

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 advising, and integration with leading payroll providers.

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