For an updated list of available retirement plans and annual plan limits, reference our employee retirement plan chart.

The standard 401k plan already provides a valuable service to all eligible employees – it allows them to use pre-tax dollars to lower their taxable income and invest in a variety of commodities. But businesses can exponentially increase the value of their 401k plans by offering a 401k employer match.

By offering a 401k employer match, you provide one of the strongest measures for retaining employees. Since the news about social security benefits looks grim as years go on, employees look to their companies to help them maximize their savings potential to prepare for retirement. With a match, you're giving employees free money to contribute to their retirement which in turn helps you avoid costly discrimination testing.

A typical 401k employer match works by matching a certain percentage of employee contributions known as elective deferrals. These elective deferrals indicate how much they want to come out of their paycheck before taxes which is placed in their 401k accounts. Employees can then invest in a variety of stocks, bonds, mutual funds, and annuities.

401k employer match example
Here's an example of how a typical 401k employer match works using real dollar amounts:

One of your employees earns $50,000 per year and contributes $10,000 annually to her 401k plan. Meanwhile, your company offers a benefit of 50% of the first 6% of employee salary. In this case, you will match $1,500 of your employee's contributions (6% of $50,000 is $3,000; half of $3,000 is $1,500). This brings her annual contribution to $11,500.

Squashing 401k employer contribution concerns
Some businesses choose not to make 401k employer contributions because they either can't afford it, or fear employees will leave the company and take the matched funds with them.

In the case of making 401k employer contributions, you help encourage employee participation in the plan and avoid costly discrimination testing requirements. Also, employees can only gain ownership of the funds you match based on a vesting schedule you set; if they haven't worked for you for a certain amount of time, the funds are returned when the employee leaves.