Why do employers 401(k) Match?

An employer sponsored 401(k) plan is an employee benefit that is hopefully highly valued by your employees. The better the plan, the more likely that your employees will perceive it as a key benefit. One way you can increase that value is by offering an employer matching contribution. Here are some reasons why employers offer a matching contribution:

Attract and Retain Employees

Research over and over again shows that many employees say an employer’s 401(k) plan is one of the reasons they work with one employer over another employer.  Employees also say a good retirement plan is one of the reasons they continue working for that employer.  

Remain Competitive

Businesses who compete for the top employees need to be competitive in the compensation and benefits they offer. This includes a 401(k) plan with a competitive match. Companies with whom you are competing for top talent are most likely offering a 401(k) with a good, solid match.  If you are not this, you may lose interest in the potential employee you are trying to recruit. 

A robust match, along with other competitive benefits and compensation may also play into the decision of current employees to continue to work for you or move to a competitor.

Tax Benefits

Matches to a 401(k) plan are tax deductible for an employer if IRS mandated levels are not exceeded for the plan year. Matching contributions may also be deductible for state taxes and may be exempt from some types of payroll taxes.

Help Employees Retire

When your employees know they are on a solid path to retirement, it can help alleviate financial stress which can be a major cause of lost productivity in the workplace.

When you help your employees get on tract in order to retire on time, it may help alleviate issues when more experienced, older employees continue to work due to the fact that they can’t afford to retire. This can be a consequence to the career paths of younger folks who may be ready to take on positions of greater responsibility but are shut out of these jobs because older employees still working in those positions. 

The employer match can be a key tool in helping your employees on their path to being able to retire on time. A healthy match combined with employee financial education can help get your employees to a position where they can feel good about moving into retirement.

Cappuccino Financial Retirement Solutions is a retirement plan services firm assisting small to mid-sized businesses manage the complex challenges posed by employer-sponsored retirement plans.  Contact us at your earliest convenience for a complimentary consultation to see how we can help you get started.  We help make retirement plans simple!

This content is developed from sources believed to be providing accurate information.  It may not be used for the purpose of avoiding any federal tax penalties. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.  This information is not intended as authoritative guidance or tax or legal advice.   You should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.  For Plan Sponsor Use Only -not for use with participants or the public.