Employer contributions to 401(k)s
Employers can match employee 401k contributions by establishing a Safe Harbor 401k plan.
- For Safe Harbor plans, employers match up to 4% of an employee's salary.
Examples of Employer Contribution Schemes
- Discretionary Contributions, also known as non-elective contributions, are employer contributions that are allocated to an employee's account independently of employee contributions.
- Matches are employer contributions that depend on the amount of an employee's elective contributions. In this scheme, employers can choose to:
- fully match, dollar for dollar, up to 4-6% of the employee's total salary.
- fully match $1 for each $1 the employee contributes for up to 3% of the employee's total salary, and $ 0 .50% of each $1 for the next 2% of the employee's salary.
- Discretionary Matches are non-elective matches. In this scheme, employers choose whether or not to match employee contributions. Discretionary match schemes are entirely up to the employer, and can be changed at any time.
Discretionary matches are not part of the 401k Adoption Agreement, and are not factored into compliance testings. In addition, discretionary match schemes alone do not meet the requirements of a Safe Harbor plan. However, a discretionary match can be made in addition to a compliant match scheme.
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