Companies often offer various benefits such as competitive retirement savings plans to attract and retain employees. They can provide the company with 401(k) matching contributions who stand out as being above average in attracting more potential new hires or retaining their employees.
Employees who contribute up to their limit can essentially get more “free money” for their retirement savings. Let’s look at three examples of great companies that offer above-average deals 401(k) matching employer contributions.
Key points to remember
- Employers use perks like a 401(k) match to attract and retain employees.
- Companies aren’t required to offer a 401(k) match, but they often use this benefit to compete for workers.
- The average employer contribution was 4.5% in 2020 and the median was 4.0%, according to research by Vanguard.
- The big companies that provide some of the biggest matches are ConocoPhillips, Philip Morris International and Amgen.
Companies with some of the best employer matches
Employers are not legally required to provide employees with a pension plan. Instead, they do so to provide an edge to attract and retain good talent.
The average employer match in 2020 was 4.5% and the median employer match was 4.0%, according to Vanguard research. Therefore, companies that provide more than these amounts are more likely to stand out in the job market.
ConocoPhillips, a multinational crude oil producer, offers a 6% match to employees after they contribute at least 1% of their earnings to their 401(k). Then the company provides up to an additional 6% in discretionary contributions based on company performance and other factors. Under the corporate plan, ConocoPhillips’ goal is to provide at least a 3% discretionary contribution, for a total matching contribution of 9%.
Philip Morris International Inc.
Philip Morris International, a multinational tobacco company, initially pays up to 5% of an employee’s eligible contributions. Then, it contributes an additional 7% to 15% of the employee’s compensation depending on the company’s annual performance.
Once hired, every Amgen employee is automatically enrolled in the 401(k) plan to contribute 5%, an amount they can adjust. Amgen will match 100% of the first 5% the employee contributes to their plan. Additionally, the company automatically contributes up to 5% of eligible compensation each pay period, whether or not the employee contributes to their 401(k).
How Companies Can Offer a 401(k) Match
Fiscally advantageous retirement plans like 401(k)s are regulated by the Tax Service (IRS) and the Employees Retirement Income Security Act (ERISA). They allow employees to contribute a percentage of their salary with pre-tax income and then choose their investments. Contributions are not subject to federal income tax until withdrawn at a later date, usually during retirement years.
Companies can contribute to their employees’ 401(k) plans in several ways, such as dollar-for-dollar matches or partial matches. With dollar-for-dollar matches, the employer will contribute the same amount of money as the employee, up to a certain amount. For example, if an employee contributes $100 per paycheque, the employer will also contribute $100.
With partial matches, the employer can contribute a percentage of what the employee contributes. For example, if an employee contributes $100 per paycheque, the employer may offer a 50% contribution, or $50.
Companies may offer a matching benefit or other types of contributions. Then they can deduct their contributions up to the IRS limit. To benefit from tax deductions, companies may not offer the management contributive counterparties different from those they offer their employees. The company also cannot contribute more than the legal limit, which is 100% of the employee’s annual salary or $61,000 (or $67,500 if the employee is age 50 or older) to from 2022, whichever is lower.
Are companies required to offer 401(k) matching?
Employers are not required to provide a pension plan or 401(k) matching contribution. However, many companies offer a 401(k) match as a benefit to employees.
What is a good employer match?
According to a 2020 study conducted by Vanguard, the average 401(k) match from the previous year was 4.5% and the median match was 4.0%. About 20% of companies that offered matches required their employees to work for a year before receiving the match.
Should you always try to maximize your contributions to match the employer’s offer?
Maximizing your 401(k) contributions can help you get the most out of your employer match. When you contribute up to your employer’s matching limit, you avoid leaving “free money on the table”. Consider your current financial situation, including your debts and cash flow, when determining whether to maximize your contributions to match the employer’s offer.
Companies decide how much of a 401(k) match they want to offer or whether to offer a retirement plan. In today’s competitive job market, many companies are offering more matching dues to attract and retain employees. If you’re applying for a new job, consider the benefits the company offers, including how much it offers in return for 401(k) contributions.