I would say that the 401(k) match really doesn’t get enough attention these days. So often it is easy to get stuck on the annual salary, but there is so much more to compensation than just the base salary. While an employer matching program is not required for the employer to provide, many employees and employers alike benefit from the program. Before getting into why a 401(k) match is a good idea, it important to understand what exactly a match rate is.
An employer will match up to a certain percentage of an employee’s contributions to their 401(k). For example, an employer may match 100% of the first 5% that an employee contributes. This means if you contribute 10%, they will match 5% and if you contribute 3%, they will only match 3%. In this case, if you only contributed 3%, you would be leaving 2% on the table. Of course, you’ll have to contribute more, but there goes the free money out the window if you don’t! If your employer offers a 401(k), be sure to research their vesting schedule and matching rate. A vesting schedule will determine the percentage of ownership you as an employee have over said matched funds based off years of employment.
A strong 401(k) match program generally encourages employees to stick around for a little longer to earn any match contributions. If you haven’t paid that much attention to your company’s retirement offerings, now is the time. For employees, contributing to a 401(k) is a great way to save money for retirement on a tax-free basis, (that is until you decide to retire).
Obviously, a 401(k) match will benefit the employee, but there are also many ways that a match program can benefit the employer as well. One of the most notable reasons is that a 401(k) match program is a great way to incentivize employees to stay with their current employer. Because an employee must start the vesting process all over again once they begin employment for another company, a match rate is a great incentive to get employees to stay. Aside from getting employees to stay, a match rate can also entice candidates to accept a job offer. After all, the option of a 401(k) match program could be the deciding factor for a candidate to accept a job offer. Lastly, we can’t forget the tax benefits that employers receive if they contribute to employee’s retirement accounts.
There are so many benefits for both employees and employers. If you are an employer and are looking for additional ways to incentivize employees on a long-term basis, an attractive 401(k) match program may be just the thing your company’s compensation and benefits package has been missing.
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