Understanding employer match
What is a 401(k) employer matching contribution?
A 401(k) employer matching contribution is when an employer matches a portion or all of an employee's contributions to their 401(k) plan. Employees generally need to contribute to receive the match, which encourages participation and boosts retirement savings.
What are common types of employer matching formulas?
Employers may choose from several matching formulas, including:
- Dollar-for-dollar match: The employer matches 100% of the employee's contributions up to a set percentage of pay. For example, with a 4% match, an employee contributing 4% receives an additional 4% from the employer.
- Partial match: The employer matches a portion of the employee's contributions. For example, 50% of contributions up to 6% of pay. An employee contributing 6% receives a 3% match.
- Tiered match: The employer applies different matching percentages at different contribution levels. For example, 100% on the first 3% of contributions and 50% on the next 3%.
Is there a limit to how much an employer can match?
Yes. The IRS sets annual limits on total 401(k) contributions, which include both employee and employer contributions. The IRS also caps the amount of annual compensation that can be used to calculate the match. Your matching formula must stay within these limits.
Can employer matching contributions be discretionary?
Yes, if your plan allows it. With a discretionary match, you can decide each year whether to make a matching contribution and what formula to use. This gives you flexibility based on your company's financial performance.
In a Safe Harbor plan, the safe harbor contribution formula is fixed in the plan document. Some Safe Harbor plans also permit an additional discretionary match within IRS limits — check your Adoption Agreement.
Your plan's match
Does my company offer an employer contribution or employer match in our 401(k) plan?
Whether your company offers an employer contribution or match depends on your plan type.
- Safe Harbor Plan If your company has a Safe Harbor plan, employer match details are strictly defined in your plan document or Summary Plan Description (SPD). Look for the section titled Safe Harbor Matching Contributions or Safe Harbor Nonelective Contributions.
- Traditional Plan Employer match provisions are determined by your company. If you're unsure of the details, review your internal documentation or confirm with your internal team.
How do I know what type of plan my company has?
You can find your plan type on the company plan dashboard by navigating to 401(k) Plan > Plan Settings. Your plan type will be listed at the top of the Overview section.
How do I find my plan document or Summary Plan Description (SPD)?
Most plan documents can be found on your company plan dashboard by navigating to Resources > Documents. If you're unable to locate a specific document, your Betterment at Work support contact can assist.
What should I do if I have a Traditional plan but can't find my company's employer match details?
If you're unable to locate employer match information in your internal records, please reach out to your Betterment at Work support contact. We can review the plan provisions we have on file.
Paying the match
How do I know how much employer match we owe?
The amount depends on your plan's match formula and how often the match is calculated. You'll find both in your Adoption Agreement, located under Resources > Documents on your plan sponsor dashboard.
To review what you've already contributed, log in to your plan sponsor dashboard and select Payroll from the left-hand menu. If you're unsure whether a match is still outstanding, contact your Betterment at Work support contact with your plan name and the payroll dates in question.
When does the employer match need to be deposited?
It depends on how your plan calculates the match:
- Per pay period: The match is calculated and funded with each payroll, typically at the same time as employee contributions.
- Annually: The match is calculated based on total contributions for the plan year. Any additional amount owed is typically funded after the plan year ends as a true-up contribution.
What is a true-up, and how will I know if we owe one?
A true-up is an additional employer contribution that makes sure employees receive the full match they're entitled to for the year. It's most common when a plan calculates the match annually but funds it each pay period, or when employees change their contribution rate during the year.
If a true-up is needed, Betterment will identify it during annual compliance testing and create a task on your plan sponsor dashboard. Learn more in Understanding 401(k) True-Up and True-Down Contributions (https://www.betterment.com/help/work/401k-true-up-contributions).
Changing or ending the match
How do I update the employer match contribution we have on file?
Employer match contributions are subject to IRS and ERISA regulations. Because a change usually requires a legal Plan Amendment, it is important to contact your Betterment at Work support representative directly. We'll review the requested update as well as guide you through the next steps.
Please be sure to come ready with the following information:
- Plan name
- Current company contribution or match formula, if known
- New formula or rate you want to use
- Whether the contribution is made per payroll or annually
- Requested effective date
- Payroll provider or integration, such as Gusto, ADP, Paychex, Rippling, or another provider
- Any additional instructions for how the change should apply
Describe the formula clearly. For example: "100% match on the first 3% of employee contributions, plus 50% on the next 2%."
What happens to the employer match if our business is closing?
Closing your business doesn't automatically end your 401(k) plan. You may still owe employer match on your final payroll, or a true-up for the partial year. To learn what to expect and how to terminate your plan, see Closing Your Business: Final Payroll, Employer Match, and Plan Termination.