401(k) Matching
An employer contribution to employees' 401(k) retirement accounts, typically matching a percentage of employee contributions up to a salary limit.
FAQs
Is 401(k) matching required by law?
No. Offering a 401(k) plan is voluntary for employers, and matching is not required. However, if an employer offers a 401(k) plan, they must comply with ERISA nondiscrimination rules, which is why many adopt Safe Harbor plans that require minimum matching to avoid annual testing.
What is the true cost of 401(k) matching to an employer?
The employer match is a direct payroll cost, typically 3–6% of participating employees' salaries. However, it's fully tax-deductible, reducing the net cost. For a company with $5M in total salaries where all employees participate and the match is 3%, the annual match cost is $150,000 pre-tax.
What happens to unvested 401(k) match contributions when an employee leaves?
Unvested employer contributions are forfeited when an employee leaves before fully vesting. These forfeitures can be used by the employer to pay plan administrative expenses or to reduce future employer contribution obligations. Employees always retain 100% of their own contributions regardless of vesting.
Related Terms
Benefits Administration
The management of employee benefits programs including health insurance, retirement plans, PTO, and other compensation components.
Equity Compensation
Non-cash compensation in the form of company ownership interests, including stock options, RSUs, and restricted stock, used to attract and retain talent.
Cliff Vesting
A vesting provision where no equity vests until a minimum service period (the cliff) is completed, protecting against early departures.
Payroll Tax
Taxes levied on wages and salaries, split between employee withholding and employer contributions, funding social programs like Social Security and Medicare.