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Considerations When Making Changes to an Employer Match

August 3 2023

If you’re considering making changes to improve employee engagement with your current 401(k) plan, the employer match is a great place to start. A more generous match can help your business attract and retain talented employees, show your continued commitment to their future, and boost the tax advantages for both you and your employees.

According to a 2022 survey by Principal Financial Group, nearly two-thirds of workers identified a company 401(k) plan match as the most important factor in helping them reach their retirement goals. If you’re looking to level up your match, here’s a quick primer to help you get started:

  • The cost of offering a match. Obviously, offering a 401(k) employer match comes with a cost. You need to budget for the amount of money you will contribute to your employees’ accounts. This can be a challenge for businesses that are more cyclical in nature, or anticipate other business challenges from time to time.
  • The type of match formula. There are different ways to calculate how much you will match your employees’ contributions. The most common formula is to match a percentage of what an employee contributes up to a certain limit of their salary (for example, matching 50% of their contributions up to 6% of pay). Another option is to match a fixed dollar amount, regardless of employee salary or contribution. For example, you could match $1,000 per year for each employee.
  • The contribution limits. There are annual limits on how much you and your employees can contribute to a 401(k) plan. For 2023, the employee contribution limit is $22,500 (or $29,000 for those age 50 or older), and the total contribution limit (including employer contributions) is $61,000 (or $67,500 for those age 50 or older). You need to make sure that your match formula does not exceed these limits.
  • The vesting schedule. You can choose to have immediate vesting, which means that your employees own your contributions as soon as they are made, or you can have a gradual vesting schedule, which means that your employees gain ownership over time (such as 20% per year for five years). A generous vesting schedule could affect how loyal your employees are to your company and how likely they are to stay. About 44% of 401(k) plans offer immediate full vesting of a company match (a 10-point jump from just 3 years ago), according to the Profit Sharing Council of America’s (PSCA)
  • Nondiscrimination testing. As a 401(k) plan sponsor, you need to pass certain tests every year to ensure that your plan does the not favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs). One of these tests is the actual contribution percentage (ACP) test, which compares the average percentage of salary that HCEs and NHCEs receive from employer matching contributions. If the difference is too large, you may need to refund some of the matching contributions to HCEs or make additional contributions to NHCEs.

There’s no one-size-fits-all answer to what match structure will work best. You need to weigh the pros and cons of different options and find the best fit for your business goals and budget. You should also consult with your plan advisor and/or recordkeeper about it.

For inspiration, here’s what some large employers are doing with their match:


The company will match dollar-for-dollar the contributions of non-union workers, up to 10% of their base and incentive pay. The employer contributions are fully vested immediately. Beginning in 2023, student loan debt payments made by U.S. employees also qualify for an employer 401(k) match.


Employees receive a dollar-for-dollar match up to 6% of their eligible pay each year. Eligibility for the matching contribution begins after working at Citi for a year. Citi additionally provides a fixed contribution of up to 2% of eligible pay, regardless of whether the employee contributes to the plan, for workers who meet certain criteria.


Through the 401(k) plan, employees can receive a $0.50 match for every pre-tax or Roth dollar saved. The match continues until the worker has reached the IRS contribution limit. In 2023, those enrolled in a 401(k) plan can place up to $22,500 in the account, or $30,000 for those age 50 and older. Both the match and contribution are vested from the first day.


Qualcomm has structured its 401(k) plan so that employees at the lowest end of the pay scale can obtain a high level of matching. An employee receives a match of 100% up to the first $1,500 that is contributed to the plan. For the next $1,500 saved by an employee, the company provides a 50% match. A 33% match is offered for the following $7,500. After that amount, employees receive a 10% match on their contributions, which continues up to the IRS contribution limit.


Sources/ Notes

“How 401(k) Matching Works,” (Investopedia, May 27, 2023)

“401(k) Employer Match Rules – 10 Things For Employers to Know,” (Human Interest,

February 17, 2023)

“Companies With Great Retirement Plans,” (U.S. News & World Report, November 22, 2022).

CNBC. (14, April 2022). 62% of workers view 401(k) employer match as key to reaching retirement goals. But they may wait years for those contributions to be their own. 62% of workers view employer 401k match as key way to reach retirement (

Investopedia. (27, May 2023). How 401(k) Matching Works. How 401(k) Matching Works (

Human Interest. (17, Feb 2023). 401(k) employer match rules: 10 things for employers to know. 401(k) employer match rules: 10 things for employers to know | Human Interest

U.S. News & World Report. (22, Nov. 2022). Companies With Great Retirement Plans. “Companies With Great Retirement Plans,”

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