Average Employer 401(k) Match in 2023

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Contributor, Benzinga
July 17, 2023

A 401(k) match is an employer-sponsored retirement plan in which your employer will match up to a certain amount of total contributions, increasing your retirement savings. Maximizing a 401(k) match allows you to take advantage of free money while skipping a 401(k) match leaves money on the table. Read on to learn about the average employer 401(k) match and find tips to maximize your contributions.

What Is a 401(k) Match?

A 401(k) employer matching program means that your company will match contributions in your 401(k) retirement account each year up to a certain amount. This makes 401(k) matching free additional compensation you’ll lose if you don’t contribute to a 401(k). 

How much companies match for 401(k) contributions varies widely. Many employers contribute a certain amount to your 401(k) in addition to what you contribute. Sometimes they elect to contribute based on company performance. 

As of 2023, you may contribute up to $22,500 to your 401(k). Your employer could match 100% of your contributions up to the full amount or some percentage of your total contributions. 

Common types of employer-sponsored 401(k) matching programs are:

  • Dollar-for-dollar match, which matches 100% of what you contribute
  • Fixed-percentage match, such as contributing up to 50% of your contributions
  • Tiered match, which gradually reduces employer contributions based on set percentages

How Much Do Employers Typically Match for Employee Contributions?

Employer-matched contributions vary from company to company. When considering new positions, take into account employer-match potential and any limitations or restrictions to accurately compare total compensation packages. According to the U.S. Bureau of Labor Statistics (BLS), 41% of companies offer 401(k) match plans equal to up to 6% of employees’ salaries. 

Partial Match

A partial match plan matches a certain percentage of employees’ contributions. This can take the form of a fixed percentage or a tiered structure. In the case of a fixed percentage, employers will match employees’ contributions up to a certain percentage. There is also a limit on matching amounts. For example, with this type of contribution plan, employers may match up to 50% of contributions up to $6,000 or 6% of the employee’s salary.

For tiered contributions, the percentage matched changes. Typically, the first 2% to 3% of contributions will be matched to a higher level, with each additional 1% to 2% of salary deferral receiving a smaller matching contribution. 

Full Match

A full match means the employer will match up to 100% of your 401(k) contributions. For 2023, the maximum contribution for employees is $22,500. The maximum total employer and employee contributions must be the lesser of 100% of the employee’s compensation or $66,000. 

Most employers match 401(k) contributions that range from 0% to 7% of the employee’s salary. BLS data shows that the median employer match is a 3% match of the employee's salary. 

For all employers:

  • 41% match a percentage of employee contributions between 0% and 6% of salary
  • 10% match a percentage of employee contributions at 6% or more of salary
  • 49% of employers with 401(k) plans match 0%

This is one form of employee benefits. According to March data from the BLS, total benefits packages comprise an average of 29.5% of total employee compensation. 

Factors That Could Influence Employer 401(k) Match Rates

Companies may choose automatic employee 401(k) match program enrollment or may require specific enrollment. They also may change compensation packages from year to year. Factors influencing employer match rates include industry, company strength and company culture. Here’s how each of these factors plays out. 

Company Financial Health

Financially stable and profitable companies are more likely to offer higher match rates to attract and retain talented employees. Strong companies often offer higher matching because a strong matching program can be a tool to attract and retain top talent. Some companies will also offer a matching bonus based on company performance. 

Industry Norms

In some ways, competitors work together. It is common for companies within the same industry to offer similar match rates to stay competitive in attracting employees. According to the National Association of Plan Advisors, the industries with the best 401(k) plan matching programs include:

  • Financial advice and investment 
  • Certified public accountants
  • Lawyers and legal services
  • Physicians
  • Financial and insurance services
  • Engineers
  • Insurance providers/brokers
  • Dentists
  • Consultants
  • Mining and utilities

Company Culture and Values 

Some companies may prioritize employee benefits, including 401(k) matching, as part of their overall company culture and values. These companies may offer generous match rates to show their commitment to employee financial well-being. 

Companies in the tech industry are known for using this strategy to attract and retain top talent, although companies promoting employees' well-being are increasing across industries. 

Employee Retention and Recruitment Goals

Higher match rates can incentivize employees to stay with the company long-term and be attractive to potential candidates during the recruitment process. Many companies will use attractive 401(k) match retirement planning to attract strong employment candidates. 

Employee Demographics

Companies with a younger workforce may offer lower match rates, assuming that younger employees have more time to save for retirement than older employees. Likewise, some companies place conditions on employer matches based on the duration the employee remains with the company (see more on vesting below). You may have to stay at the company for three years (for example) to collect matching benefits.

Regulatory requirements

Employers must adhere to certain regulatory requirements when offering 401(k) matching. These requirements, such as nondiscrimination testing, may influence the match rates employers offer.

According to the IRS, 401(k) plan tax benefits must provide substantive benefits for rank-and-file employees, not only for business owners and managers. These requirements are referred to as nondiscrimination rules.

What Is the Maximum 401(k) Match Contributions?

You can contribute up to $22,500 to your 401(k) accounts. If you’re 50 or older, you can have a catch-up contribution of up to $7,500. In addition, total contributions for employer and employee from 2023 must be the lesser of 100% of the employee’s compensation or $66,000 

401(k) Matching vs. Vesting: What’s the Difference?

Many companies choose to use vesting to contribute to a 401(k) matching plan. The money you contribute to a 401(k) plan is yours immediately. However, vesting is the process of making the company’s contributions available to you over time. 

With vesting, the company allocates funds for your 401(k), but it determines when they become available in your 401(k). Immediate vesting means the employer-match contributions are available immediately, but this is rare. Instead, companies use a vesting schedule. The most common vesting methods are graded vesting or cliff vesting. 

With graded vesting, the employer releases a certain percentage of its contributions to your 401(k) vest each year over a number of years until you are fully vested in your account.

With cliff vesting, your 401(k) will fully vest at a specific time. In this case, your 401(k) will jump from 0% vested one day and 100% the next. This can happen after a set number of years or any other date predetermined by your employer. 

6 Tips on How to Maximize Your 401(k) Matching

Maximizing your 401(k) matching can ensure a comfortable retirement and a higher annual compensation because you’re taking advantage of all benefits your employer offers. Here are steps to ensure you don’t leave free money on the table.

1. Understand the Match Formula 

Review your employer’s 401(k) plan documents or consult with human resources to understand the specifics of your match. It may also vary from year to year, so be sure to double-check matching limits annually. Then, calculate the maximum based on your employer’s matching schedule.  

2. Start Contributing Early

The earlier you start contributing, the more time your contributions have to grow through compound interest. Plan to reach match limits in the first half of the year if you can. This also allows for make-up contributions in case the maximum match value changes. 

3. Contribute Enough to Get the Full Match

Many employers offer a match based on a percentage of your salary or a fixed dollar amount. Determine the contribution level required to receive the full match and aim to contribute at least that amount. This is usually up to 6% of your total salary but can vary by employer. 

4. Increase Your Contributions Over Time 

By contributing a higher percentage of your salary, you can make the most of your employer match and increase the overall size of your retirement savings. After maximizing employer match in a 401(k), consider contributing to a Roth IRA for tax-advantaged retirement growth. 

5. Automate Your Contributions 

By automating your contributions, you guarantee that you are consistently saving and taking advantage of the employer match without having to remember to make manual deposits. You can automatically transfer a percentage of each paycheck to your 401(k) plan. 

6. Take Advantage of Catch-Up Contributions 

If you are older than 50, you may be eligible for catch-up contributions of up to $7,500 per year. This allows you to contribute more and still take advantage of compound growth until retirement. 

Take Advantage of Employer Contributions

Most employees would be thrilled with a 6% raise. If you’re not taking employer-match funds, you’re essentially leaving the equivalent with your employer. Consider other retirement planning vehicles once you ensure you’ve reached all employer-match contribution limits. And don’t forget that contributing is the first step. Then, invest those funds with a long-term strategy to achieve maximum growth.

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About Alison Plaut

Alison Plaut is a personal finance writer with a sustainable MBA, passionate about helping people learn more about financial basics for wealth building and financial freedom. She has more than 17 years of writing experience, focused on real estate and mortgage, business, personal finance, and investing. Her work has been published in The Motley Fool, MoneyLion, and she is a regular contributor for Benzinga.