Employer 401(k) Conformance: Everything You Need to Know


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If you’re an employee who earns a monthly or two-week salary, it’s possible to leave your money on the table by not taking full advantage of your employer’s retirement matching.

In 2021, 68% of private industry workers received retirement benefits through their employer, according to the US Bureau of Labor Statistics. Many employers offer match over contributions to incentivize saving for retirement and encourage employee retention as part of a comprehensive benefits package. If you have access to a 401(k) plan with a company match, it’s a good idea to save as much as you can for your retirement.

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If the employer provides a match, contribute enough to receive the full match. It’s free money that can add a significant boost to retirement savings over time.

Employer matching can happen in two ways, and not every employer is the same. Here’s what you should know about how it works.

What is an employer 401(k) conformance?

An employer matching 401(k) is a contribution that an employer makes to a 401(k) retirement account. The contribution corresponds to what you received from your salary, usually up to a specified amount. A 401(k) is an employee-sponsored retirement account offered by employers to help their employees save and invest for retirement in a tax-advantaged manner.

“A matching is the money an employer contributes to a 401(k) account when the employee also actively contributes,” says Kelly O’Donnell, executive vice president and head of workplace at Edelman Financial Engines, a financial planning firm. So in order to get an employer match, you have to contribute as well.

How does matching work

Each plan specifies what your employer matches, usually a dollar-for-dollar amount up to a certain percentage. For example, if your annual salary is $50,000 and you send 5% of the check to your retirement account, you will have $2,500 saved. If your employer matches your contributions by up to 5%, you will have an additional $2,500 for a total of $5,000 per year.

Some employers offer partial matching that is not dollar for dollar or less after a certain threshold. Meanwhile, some employers offer automatic contributions without the need for matching (although this is less common). That’s why you’ll need to read or discuss your plan options carefully to determine how much you need to contribute to getting your maximum match.

Be sure to see if there is a vesting period, which means that the matching employer may not be entirely yours until you have been employed for a certain amount of time, usually measured in years. For example, your company might have a plan in which contributions are due after a number of years (known as a shelf jacket). Understanding the vesting schedule is important, because if you leave the company before you get it fully, you won’t get your employer match.

Generally, employers automatically contribute matches based on your usual salary. However, there are cases where employers provide what is known as deferred matching on a different schedule.

Profit sharing is an example of a deferred match that takes place off a regular schedule. Employers use this form of retirement matching most often to motivate or reward employees by adding a portion of annual earnings to employees’ retirement accounts. It’s like a bonus, just tax-deferred.

How to tell if your employer matches a 401(k)

Employers are required to provide you with a set of documents explaining any benefits on offer, including 401(k) terms and any match included. If you don’t have these papers, ask your company’s benefits coordinator or human resources (HR) department. Make sure you understand the exact terms of a match, such as when it starts and how often it will be delivered to your account.

Some employers also advertise their match rate on their job listings to attract new employees and retain existing employees. Know that you may have to sign up once you start working, or your HR department may automatically put you on your company’s 401(k) plan—and an automatic annual increase may apply.

says Heather Winston, certified financial planner and director of financial planning and advice at Major Financial Group.

It’s also a good idea to understand your investment options, and what the default settings are for your account. If you can hit your 401(k) cap, that’s a good thing, but be sure to contribute what fits your budget and overall financial goals.

Should you maximize matching with your employer?

“If your employer offers a match, you should definitely strive to contribute enough to cash in on the full match. If you don’t, you leave free money on the table,” O’Donnell says. “It adds up over time.”

Even if you don’t want to hit the 401(k) cap, having a full employer match helps you save and take advantage of all the benefits available to you through your employer. So it is a good idea to contribute at least enough to get what your company desires to achieve.

“It is important to start small and start now because you can always increase the amount you save each year. Even a 1% increase will add up, especially if your company matches these contributions. This makes the power of compounding work for you,” Winston adds.

Does the number match the contribution limits?

“The short answer is no,” Winston says. But there is a separate IRS rule that limits the amount of total contributions to the 401(k) from both the employee and employer combined.

In 2022, most people can transfer up to $20,500 annually into a 401(k) account — $1,000 more than in 2021. If you’re 50 or older by the end of the year, you can add an additional $6,500 in compensatory contributions.

However, the total limit from all sources is $61,000 in 2022. This means that no matter who contributes to your account, you cannot exceed this amount for the year. If your employer provides a match in the above scenario, the maximum amount you will reach is $41,000. So you are not likely to exceed the total contribution limit.

If your company’s 401(k) plan offers a match, try to contribute enough to get the full amount. From there, you can assess whether you want to contribute more than this amount to your retirement fund.


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