Employer match

What an employer match is

A matching contribution rewards employees for saving. The plan document sets the formula, for example 100% of the first 4% of pay deferred, or 50% of the first 6%. A match can be fixed in the document or discretionary, decided by the employer each year. A 401(k) is not required to have a match unless it is a safe harbor plan using a matching formula.

Match dollars do not count toward the employee’s $24,500 deferral limit for 2026. They count toward the $72,000 annual additions limit, and pay above $360,000 is ignored in the formula.

For 2027 the deferral limit rises to $25,500 and the annual additions limit to $75,000. (IRS Notice 2026-66)

Why it matters to employers

The match is usually the largest plan cost you control, and it drives participation. It also has compliance weight. In a traditional 401(k), matching contributions go through the ACP test each year, and they can be subject to a vesting schedule. In a safe harbor plan, a match that fits the safe harbor rules skips the test and vests immediately.

Example

Your plan matches 50% of deferrals up to 6% of pay. An employee earning $70,000 defers 6% ($4,200) and receives $2,100. A colleague who defers 3% ($2,100) receives $1,050.

Common mistakes

• Matching on the wrong pay. If the plan’s definition of compensation includes bonuses, the match must too.

• Skipping eligible employees, or matching people who have not yet met the plan’s eligibility rules for the match.

• Calculating by pay period when the document says annual, without a true-up.

• Changing the formula in practice before amending the plan document.