A Strategic Guide for Employers from Top 401(k) Providers

One of the most common questions business owners ask when setting up or reviewing a retirement plan is:

“How much should we match in our 401(k)?”

Offering a company match can help attract and retain top talent — but it must also align with your company’s financial goals and long-term sustainability.

At Top 401(k) Providers, we help businesses design strategic 401(k) plans that balance competitiveness, compliance, and cost control. Here’s what you need to consider when determining your company match.

Why Offer a 401(k) Match?

A company match:

  • Encourages employee participation

  • Increases retirement readiness

  • Improves recruitment and retention

  • Enhances company culture

  • Offers tax-deductible contributions

In today’s competitive hiring environment, retirement benefits often influence candidate decisions.

Common 401(k) Match Formulas

There is no universal standard, but here are the most common structures:

-100% Match on the First 3%

Employer matches dollar-for-dollar up to 3% of employee compensation.

Example:
Employee earns $80,000 and contributes 3% ($2,400).
Employer contributes $2,400.

-50% Match on the First 6%

Employer matches 50 cents per dollar up to 6% of compensation.

Example:
Employee earns $80,000 and contributes 6% ($4,800).
Employer contributes $2,400.

-Tiered Safe Harbor Match

Common Safe Harbor formula:

  • 100% match on first 3%

  • 50% match on next 2%

This structure automatically satisfies IRS nondiscrimination testing.

-Non-Elective Contribution

Employer contributes a fixed percentage (typically 3%) to all eligible employees, regardless of participation.

How Much Do Most Companies Match?

According to industry benchmarks:

  • The average employer match ranges between 3% and 6% of compensation.

  • Many small-to-mid-sized businesses match around 4%.

However, averages shouldn’t dictate your decision — strategy should.

Factors to Consider When Setting Your Match

-Company Budget

Your match must be sustainable long-term. Overcommitting can create financial strain.

-Workforce Demographics

If you have:

  • Younger employees → Higher match may encourage participation

  • Highly compensated employees → Safe Harbor may be strategic

-Recruitment Goals

If competing for skilled professionals, a stronger match may improve your offer package.

-Owner Contribution Goals

If leadership wants to maximize their own retirement contributions, Safe Harbor structures may be beneficial.

-Plan Testing Requirements

Certain match formulas help avoid nondiscrimination testing failures.

Is a Bigger Match Always Better?

Not necessarily.

A higher match:

  • Increases cost

  • May not significantly improve participation beyond a certain point

  • Must align with cash flow

Sometimes, adjusting vesting schedules or adding profit-sharing contributions can be more strategic than simply increasing the match percentage.

Understanding Vesting Schedules

Employers may apply a vesting schedule to matching contributions.

Common options:

  • Immediate vesting

  • 3-year cliff vesting

  • 6-year graded vesting

Vesting schedules can improve retention while managing long-term costs.

Tax Benefits for Employers

Employer contributions are:

  • Tax-deductible

  • Not subject to payroll taxes

  • Potentially eligible for startup tax credits (for new plans)

Strategically structured plans may also provide retirement tax advantages for business owners.

Designing a Competitive Yet Sustainable 401(k)

The right match formula should:

  • Align with company growth goals

  • Be financially predictable

  • Encourage employee participation

  • Support leadership retirement objectives

  • Ensure regulatory compliance

There is no one-size-fits-all solution.

Why Work with a 401(k) Advisor?

Choosing the right match structure affects:

  • Cash flow

  • Compliance

  • Employee satisfaction

  • Owner retirement strategy

At Top 401(k) Providers, we help employers:

  • Benchmark their plan

  • Evaluate match competitiveness

  • Analyze long-term cost projections

  • Ensure IRS compliance

  • Optimize plan design

Final Thoughts

So, how much should your company match in a 401(k)?

For most companies, 3%–6% is common — but the best answer depends on your business goals, workforce, and financial strategy.

A well-designed 401(k) match isn’t just an expense — it’s an investment in your company’s future.

Schedule an Appointment Today!