Does an Employer Benefit From a 401(k) Matching Plan?
Hiring and retaining talented candidates can be difficult in today’s marketplace. If the candidate you’ve offered the position to is juggling multiple offers, their selection might boil down to one thing — the company’s benefits packages. Your ideal candidate is most likely to choose the company with the most competitive benefits package. Does an Employer Benefit From a 401(k) Matching Plan?
What Are the Benefits of Having a 401(k) Package for Your Employees?
401(k) plans are unique investment accounts helping workers prepare for their future retirement. They allow employees to automatically input a percentage of their weekly, biweekly or monthly paycheck into a specific account designed to grow over time.
Offering a 401(k) benefits package isn’t mandatory as an employer, but there are several incentives to provide one:
- Qualified talent: Set yourself apart from the competition by offering talented candidates a comprehensive benefits package.
- High retention: Show your employees they’re valued by matching their investments in their future with a 401(k).
- Long-term company success: Your company’s success is directly tied to the talents, qualifications and capabilities of your workforce.
To ensure you offer the best packages your company can, we recommend you annually review your benefits packages for new and existing employees. It’s also wise to allow new hires to transfer their previous 401(k) funds into their new account with your organization. Rolling over funds into a new employer’s 401(k) plan offers employees certain benefits to continue growing their retirement savings.
How Do Employer 401(k) Matches Work?
A 401(k) employer match means the employer has chosen to match a percentage of the employee’s contribution to their retirement account. This matching usually comes at specific rates, which tend to be between 3% and 6% of the employee’s salary. So, if 6% of their salary comes out to a 10% annual contribution, you will also make a contribution of $10. As of 2024, however, the maximum contribution amount for combined employee and employer contributions is 100% of an employee’s salary or $69,000 — whichever comes first.
There are a few different ways you can match a 401(k) contribution, such as:
- Dollar-for-dollar: This program means an employer will match employee contributions to the dollar, based on the percentage offered from the plan. So, if an employee contributes 3% each year and that amount comes out to $5,500, you will provide the same.
- Percentage-based: Also known as partial matching, this option ensures an employer will match 50% up to a certain percentage of the employee’s salary. When an employee contributes 5% of their annual salary, you will contribute 2.5%.
- Tiered match: Some employers offer matches at different rate structures. Typical structures may take shape as matching 100% on the first 5% of an employee’s salary contributed before decreasing to 50% on the next 2%.
- Non-matching: Some companies supply employees with 401(k) contributions regardless of the employees’ contribution to the account.
These 401(k) employer match plans generally become available upon employment, and sometimes through automatic enrollment. However, employer contributions can occasionally be delayed until after one year of employment.
How Do Employers Benefit From 401(k) Matches?
Employers offering competitive benefits packages are much more likely to attract a qualified workforce. This type of benefits package will ensure you stand out from the crowd for recruits who have more than one offer on the table, positioning your organization as one that cares about its staff. This offering will also likely lead to more satisfied employees, which can facilitate low turnover and improved efficiency.
Offering employer 401(k) matches will also provide your company with beneficial tax savings. The money you and your employees contribute to a 401(k) is tax-deductible and accumulates on a tax-deferred basis. So, these contributions will decrease your taxable income for the year, therefore lowering your tax bracket and reducing your tax liability. Remember to contribute to your own 401(k) because this allows for salary deferral and profit-sharing contributions.
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