Employer match

Employer matching is a feature where an employer contributes to an employee’s retirement account, based on the employee’s own contributions. Matching contributions can either be calculated on a payroll basis or annually, depending on the employer's plan set up. You can think of employer matching as extra money that can help employees save more for retirement.

How does employer matching work?

When an employee puts a percentage of their salary into their retirement plan, the employer will match a part of that contribution, up to a certain limit. For instance, an employer might offer a 50% match on contributions up to 6% of the employee's salary. This means if the employee contributes 6%, the employer adds an extra 3%

In this example, if an employee makes $50,000 a year and contributes 6% of their salary, or $3,000, to their retirement plan, and the employer matches 50% of that 6%, the employer will contribute an additional $1,500. This means the total saved for retirement will be $4,500 just by contributing 6% of their salary (for a total of 9% including the employer match).

What are the advantages of employer matching?

The biggest advantage of employer matching is that it increases employees' retirement savings without them having to contribute extra money. 

Employer matching can also encourage employee participation, which can help plans with ADP or ACP testing. ADP and ACP testing is part of nondiscrimination testing, which helps a plan keep its qualified status under IRS rules.  

What is the maximum employer match contribution?

Employer matching contributions can vary based on company policy or budget, but there are limits set by the IRS. For 2025, the combined total of employee and employer contributions cannot exceed the lesser of $70,000, or 100% of the employee’s compensation. This is known as the 415(c) limit, which is typically updated annually by the IRS. Additionally, the amount of employee compensation subject to matching is capped at $350,000 for 2025.

Typical employer matching example

Imagine an employer offers a matching contribution of 50% of the employee’s contributions, up to 6% of their total compensation. If an employee earns $50,000 and contributes 6% of their compensation, they would contribute $3,000 into their retirement account. Since the employer contributes 50% of what the employee contributes into their account, the employer adds an additional $1,500 to their employee’s retirement account, bringing the total contribution to $4,500.

415(c) limit employer matching example

For example, if an employee earns $400,000 and their employer matches up to 6% of their total compensation, the maximum contribution from the employer under the plans match formula would be $24,000. However, the IRS sets a cap on the amount of income eligible for matching, which in 2025 is $350,000. Therefore, the employer can only provide matching contributions based on 6% of $350,000, or $21,000.

Who is eligible to receive matching contributions?

The plan document outlines who is eligible for matching contributions. The eligibility rules for matching contributions may be the same as those for employee contributions (deferrals), or they may differ. For example, a plan might allow employees to start making deferral contributions right away but require them to work for one year and complete 1,000 hours of service before they are eligible to receive matching contributions.

Additionally, there may be allocation conditions tied to receiving the employer match each year, such as a requirement to be employed on the last day of the plan year or to work at least 1,000 hours. These conditions are determined by the plan document.

What types of retirement plans offer employer matches? 

Employer matching is most commonly associated with defined contribution plans, including:

• 401(k) plans: The most popular option, offering a variety of employer match structures.

• 403(b) plans: These plans are typically for employees of public schools and certain non-profit organizations and may include employer matching.

• SIMPLE IRA plans: Used by small businesses, these plans include a mandatory employer match or non-elective contribution.

Each of these plans has specific rules for how and when employer contributions can be made, so it’s important to consult the plan documents to understand the details.

Is employer matching subject to vesting rules?

Employer match contributions may be subject to vesting rules. A plan’s vesting schedule, can be found in the plan document or Summary Plan Description (SPD). Vesting determines how much of the employer’s contributions the employee owns after completing a specific period of service. If the employee leaves before being fully vested, they will lose part or all of the employer's contributions.

For instance, if the match vesting schedule is a three-year cliff (i.e., 0% in year one, 0% in year two, and 100% in year three) an employee who terminates after two years will be 0% vested and not be entitled to any of the matching contributions in their account.

The bottom line

Employer matching is a powerful incentive for both attracting and retaining employees, as it can help them grow their retirement savings. By designing matching programs that encourage participation and promote employee longevity, employers can enhance their benefits package while ensuring compliance with IRS regulations. Whether offering a 401(k) or 403(b), employer matching contributions can significantly boost employees' retirement savings. When employees understand the details of matching and how vesting works, they can take full advantage of this benefit to secure their financial future.