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By Andrew Hinchliff

Topics: Employee Benefits


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Many employers offer their employees a 401(k) as a retirement planning tool. It’s often part of their employee benefits package. Around three-quarters of employers offer a contribution matching program as well, while a slightly lower percentage of smaller employers offer one.

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Reading to these statistics, you might be asking, does an employer have to contribute to a 401(k)?

The answer is no. Employers do not have to offer a match in order to set up a program, although there are several good reasons you should consider contributing to a match program.

If you’re just setting up your first 401(k) plan or you’re contemplating adding a contribution match to your existing plan, here are some things you should know.

1. You Don’t Need to Provide a 100 Percent 401(k) Match

Many employers don’t offer matching contributions because they don’t believe they can afford it. They’re often under the mistaken impression that they need to provide a 100 percent match. What this means is that for every dollar an employee contributes to the plan, you would contribute a dollar of your own.

In reality, very few employers offer a 100 percent match program to their employees. You can offer much lower percentages. For example, you might offer a 75 percent match. In this case, for every dollar an employee contributes to the plan, you would add $0.75. At a 50 percent match, you’d offer $0.50 for every dollar of employee contributions.

2. You Can Get Tax Breaks

One good reason to offer employer contributions to a plan is that it bolsters your tax write-offs. For every dollar you contribute to the plan, you can take a write down on your taxes.

This can help you cover the cost of providing the match in the first place. Many employers hesitate to offer matching because they believe it provides them with no benefits. In addition, they believe it will cost them too much money.

The tax incentives are one way of making a matching contribution far more affordable, especially for smaller employers.

3. You Can Change the Formula

Safe harbor options are very popular with employers, especially small business owners. This is because they come without risk of corrective refunds or contributions. With non-safe harbor plans, you’ll need to ensure the plan is non-discriminatory, but other than that, they face fewer restrictions.

With a non-safe harbor plan, you have discretionary control over the matching portion of the plan. This means you can change the matching formula if you need to. You can also employ “stretch match” strategies.

Further, you can add additional restrictions to the contribution, such as the employee needing to be on the payroll on the last day of the year or another requirement.

4. They Motivate Employees to Contribute

If your 401(k) plan isn’t being used much by your employees, it could be time to introduce matching. That’s because a match encourages employees to make salary deferrals to the plan.

This enables you to help your employees meet their retirement planning and savings goals. It also makes it more worthwhile for you to offer the plan as part of your employee benefits package.

Offering a plan also helps with employee recruitment and retention. In turn, you can lower the cost of turnover and improve performance, engagement, and productivity among your employees.

As you can see, there are many reasons you should consider offering a contribution match with your 401(k) plan. If you’re thinking about adopting your first plan or you want to add contribution matching to an already existing plan, talk to the experts. You can create a solution that will work for your business and your employees.


Andrew Hinchliff

With over 30 years of experience, Paymedia’s Chief Operating Officer Andrew Hinchliff is a seasoned global business leader and results-driven human capital and workforce strategist who is well-versed in human capital management, workforce management, payroll outsourcing, and benefits administration. He’s passionate about strategy and innovation and is regularly sought out for assignments that create disruptions to current business models and practices. Andrew is actively involved in coaching youth football and is an avid golfer. His strong beliefs in philanthropy have him “giving back” by volunteering for a host of charitable foundations and community-based events.

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