Employer match

Also called matching contribution, 401(k) match

Money an employer adds to a worker’s retirement account based on how much the worker contributes, up to a set limit.

What it means

An employer match is a contribution a company makes to an employee’s workplace retirement plan, such as a 401(k), tied to the employee’s own contributions. A common formula is a percentage of the employee’s contribution up to a cap measured as a share of salary, such as 50% of contributions on the first 6% of pay.

Matching money may be subject to a vesting schedule, meaning the employee must stay a certain time to keep it. Employees who contribute less than the amount needed for the full match leave part of it unclaimed.

Formula

Match = Salary × min(Contribution rate, Match cap) × Match rate

Contribution rate = share of pay the employee contributes
Match cap = maximum share of pay the employer matches
Match rate = percentage of each eligible dollar the employer adds

Example

Suppose a worker earning $60,000 contributes 6% of pay, or $3,600, and the employer matches 50% of contributions up to 6% of salary. The employer adds $1,800. If the worker contributed only 3%, the match would be just $900.

How it’s used

Deciding how much to contribute to a 401(k)
Comparing job offers and benefits
Estimating total retirement savings

Strengths and weaknesses

Strengths

Adds money that immediately boosts savings
Encourages a steady saving habit
Effectively a large instant return on contributed dollars

Weaknesses

May require years of service to fully vest
Requires the employee to contribute to receive it
Formulas and timing vary, and some employers pay it only once a year

Good to know

Check whether the match is calculated each pay period; front-loading contributions early in the year can miss part of it.

Educational information only, not financial, tax or legal advice. Rules, limits and rates change; check the IRS, your lender or plan, or a qualified professional before acting.