401(k) FAQ: Employer Matching Contributions

Q: Should we provide an employer matching contribution?

A: Whether to provide a matching contribution depends upon various considerations. Many experts advise beginning with no match or a low one since a 401(k) matching contribution can easily be increased but may be difficult to reduce. However, since a matching contribution can increase employee participation and 401(k) deferrals, motivate employees to save for retirement and help reduce employer contributions that may be needed to pass the "nondiscrimination tests," adopting a matching contribution is frequently advantageous when establishing the 401(k) plan.

Q: How can we determine the best matching contribution for our 401(k) plan?

A: Even design experts sometimes have difficulty answering this question. The desire to remain competitive with other firms, employee demographics, needs of the employer to attract and retain good employees and costs of alternative matching contribution formulas are some major factors that should be considered.


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