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A Closer Look at Employer Matching

Practice Management

The employer match is a tool that through which an employer matches employees’ retirement plan contributions up to a certain percentage of their annual salary. A recent blog entry discusses the forms that matching can take, as well as the good and bad aspects of such a program. 

In “Retirement Plan Matching Isn’t Always What it Seems,” Laurie Rowley, Co-Founder and CEO of retirement plan provider Icon outlines ways that employers most commonly provide a match. 

Type of Match Description
Simple Employer matches employee contributions up to a fixed percentage of the employees’ annual salary
Tiered Employer matches different levels of contributions at different rates. For instance, an employer would match 100% of employees’ contributions up to 4% of their salary and then match 50% of their contributions up to the next 2% of salary
Max Dollar Employer matches employees’ contributions up to a certain dollar threshold
Blanket Contribution Provided regardless of whether an employee contributes to his or her retirement account. Employer makes the same contribution to every employee’s retirement plan account.


Rowley also outlines advantages and disadvantages of providing a match. 



Effect on employee saving. Rowley writes that employer matching programs encourage employees to save more, and cites a Brightscope/Investment Company Institute study that found that employee contributions are higher if employers offer at least some kind of match. 

Recruitment and retention. Rowley argues that offering a match creates a positive perception an employer can use to attract potential employees and add them to the workforce. Further, she says, not only can matching encourage employees to stay longer, if the employer has a vesting schedule for the match that can serve as a further enticement to employees to stay with the employer longer. 



Sudden payment. Vesting is a double-edged sword, Rowley warns — while it may encourage some employees to stay, a vesting schedule also can result in a sudden release of matching funds when an eligible employee leaves for another job. 

Consequences when leaving. When a participant in an employer’s 401(k) leaves that employer, he or she can no longer contribute to the account — and employer contributions and matches cease as well. In addition, aside from compounding, increasing the balance requires rolling the account into another and risking fees for that transfer.

Effect on employer flexibility. Rowley observes that a matching program has to be the same for all employees who are eligible for it — so that form of compensation, at least, is not among those that an employer can tailor to particular employees as a means to reward individual achievement.