Best 401k Employer Match Structure

[employer]

I am setting up a 401k for my employees.

I am looking for an employer match structure that would be well-received by employees.

New hires will generally receive offers with compensation between $120,000 and $140,000 per year and can expect increases of 5% to 10% per year.

Obviously the "the sky is the limit" when it comes to possible match structures, but I am looking for something that will be competitive--especially when candidates are receiving offers from local companies:

• Apple: 50% of first 6% of compensation.

• Facebook: 50% of first 7% of compensation.

• Google: 100% up to $3000.

• IBM: 100% of first 5% of compensation.

• Lawrence Berkeley National Laboratory: 100% of first 6% of compensation.

(I found this information online--not sure it is completely accurate.)

I would like to have a generous, but reasonable and effective match structure that is attractive to employees, and gets me the most "bang-for-the buck" with my contribution. As always, looking forward to your replies.

[snarlyjack]

Employer,

At my company I get 80% match on my first 5% of total pay
in my 401K. (I invest 5% of my pay then the company matches
80%). 5 year vesting schedule.

About 90% of my health insurance is paid for by the company (good health ins.
dental, vision, medical, wellness plan, gym membership). Life insurance
& disability insurance.

Right now 2 weeks vacation (goes up the longer I'am employed there).
Holiday Pay.
Bonus pay.
Sick Leave.
Over time pay.
Company pick nicks, (Christmas party, summer barbeque).

But most important is : they like me & I like them. They are
good employers & decent people. For the most part long term
employees because they are good employers. I plan on staying
for a long time & learning as much as possible.

I hope I helped you.

[TomatoTomahto]

We have had various matching plans over the years, ranging from the extremely generous 2x match (reduced steadily to finally land at 50%) to DW’s current Scrooge-ish ZERO Matching (because she’s highly comped).

Our son’s new employer matches 1 for 1, but they are an outlier.

I think a 50% match hits the sweet spot of being viewed as generous without costing bucketloads. Three cheers for you for being an honorable employer

[FiveK]

As a point of reference, see Safe Harbor 401(k) Plans: Answers To Common Questions:

Safe harbor 401(k) plans require an employer to make either an eligible matching or nonelective contribution to participants:

- Safe harbor matching contribution – 2 options are available:
1) - Basic match - 100% match on the first 3% of deferred compensation plus a 50% match on deferrals between 3% and 5% (4% total).
2) - Enhanced match – Must be at least as much as the basic match at each tier of the match formula. A common formula is 100% match on the first 4% of deferred compensation.
- Safe harbor nonelective contribution – 3% (or more) of compensation, regardless of 401(k) deferrals.

[Nummerkins]

One important thing to look at is the vesting schedule. The traditional 6 years is nuts in my mind. I understand the attempt to build loyalty but I would try to shorten it up to instant or 3 years max.

[TwstdSista]

The best we've personally seen in the last few years was a 100% match up to a maximum of 3%, fully vested.

Second best was a 50% match up to a max of 6%, also fully vested.

[oldcomputerguy]

At my former workplace, match setup varied over time (our company was sold or merged four times in my time there, the last three happening in my final four years). At worst, it involved no match at all; at best, a 50% match of up to 6% of salary. Match was at various times either in cash or in company stock. (The "company stock" wasn't actually in company stock, it was in shares of a structure similar to a mutual fund that held actual company stock as its sole holding. Employees could participate in an ESPP, but that was outside the 401k structure.)

[CppCoder]

If you want to see the very generous end of the 401k matching spectrum, check the oil and gas industry. You can find all of their 401k plans with a google search. I just found Shell, Chevron, ExxonMobil, Anadarko, Devon, and Marathon. Most match at 100% up to at least 6-7%. Some of them contribute without requiring any employee contributions. Many of these companies have DB pensions in addition to their 401k plans.

[2cents2]

I like the safe harbor plan rules.

Also, I like plans that immediately post employer match on pay day. IBM requires, "As long as you are employed on December 15, the IBM contributions for which you are eligible will be deposited to your 401(k) account on the last business day of that plan year." That is a real negative IMHO.

The shortest vesting period (immediate) would be preferred.

[Big Snack]

We were 100% match up to 4% of your salary. The match was paid each pay period. We were recently bought by another company and are now 100% up to 6% of your salary but the match is not paid until January after you completed the prior year. If you do not complete the year, no match.

[The Wizard]

My employer was a nonprofit corporation spun off from a major university and therefore had a 403(b) DC plan rather than a 401(k). But the rules and contribution limits are very similar, to my knowledge.

Anyhow, we had a MANDATORY 5% employee contribution from day one of employment which was "matched" with a 10% employer contribution. But in addition to this, we could do "elective deferrals" up to $18,000 or $24,000 per year, depending on age.

So someone earning $120,000 in their over-50 working years could put away as much as $6000 + $12,000 + $24,000 = $42,000 in the present year, all tax deferred...

[Theoretical]

My company has a pricey 401k but a very generous policy:

100% of first 4 percent and 50% of the next 2% match, fully vested.

[Didymograptus]

The company I work for has just over 20,000 full-time employees worldwide - maybe 1000 in the USA.

Its 401k is with T.Rowe Price and it has 100% match up to 6% of earnings.

Vesting schedule is:
< 1 year 20%
1 Year 40%
2 Years 60%
3 Years 80%
4 Years 100%

It also has a Money Purchase Plan equal to 10% of salary - no employee contributions.
Vesting is:
< 2 year 0%
2 Years 20%
3 Years 40%
4 Years 60%
5 Years 80%
6 Years 100%

[rosylenm]

Best employer contributed 5.5% of salary monthly regardless of employee’s contribution and vested immediately.

[jayk238]

Mine is 6% match at 100% vested after 5 years employment

Insurance is covered about 80% by employer

Vacation is 5 weeks earned in full at the start of eaxh year and 6 federal holidays. No sick leave

Eligible for 20% bonus if corporate meets internal goals each year

[kerplunk]

My company works out to be:

1% 401(k) match
2% employee stock ownership
5% profit sharing

[bada bing]

If you want to see the very generous end of the 401k matching spectrum, check the oil and gas industry. You can find all of their 401k plans with a google search. I just found Shell, Chevron, ExxonMobil, Anadarko, Devon, and Marathon. Most match at 100% up to at least 6-7%. Some of them contribute without requiring any employee contributions. Many of these companies have DB pensions in addition to their 401k plans.

+1
I have worked as an hourly employee for 4 different oil "majors", including 2 on your list. They all had benefit programs that
beat anything I've read about in other industries. My current oil "major" employer gives 100% of the
first 7% in the 401K. I also receive 11% of salary into the company cash balance pension. Those benefits
cover a workforce of 75,000 employees.

I wouldn't expect even a generous company in another industry to match that. I can say that a few
non-cost attributes of 401K plans I appreciate are:
1. The costs of the funds offered in the plan
2. The number of "good" fund options in the plan. I think index funds covering the major indexes + good target date selections are a must
3. Flexibility in the plan rules allowing for after tax contributions and mega backdoor Roth conversions
4. A short vesting time. My current employer offers 100% vesting in 3 years to new hires.

You can get some good will for very little cost by paying attention to having a "good" 401K plan even without it
being the most generous. I would look to Fidelity as a plan provider. They have been head and shoulders above
the others I have experience with as far as service and plan particulars.

[Clark Kent]

My tech company has the following:

50% on first 6% during the first 2 years
75% on first 6% for years 2-5
100% on first 6% for years 5+

Fully vested from day one. Very inexpensive boglehead friendly funds/trusts that make Vanguard admiral shares look expensive.

[aarsmith54]

My company funds my 401k to the IRS maximum $55k without requiring any contributions from me. I am also fully vested immediately. This is in lieu of a higher salary (I make less than $100k).

[bhsince87]

Our tech company offers 100% match for first 5%. This is followed with a 5-7% profit sharing contribution for anyone who contributes at least 1%. After 1 year of employment, all contributions vest immediately, each pay day.

They also switched to low cost Vanguard funds recently, added an after tax contribution availability (for "mega backdoor Roth" option), allow folks to open an individual brokerage account, and provide free consultation with non-affiliated financial planners twice a year.

By far the most employee friendly deal I've had in my 30+ year career!

[kerplunk]

My company funds my 401k to the IRS maximum $55k without requiring any contributions from me. I am also fully vested immediately. This is in lieu of a higher salary (I make less than $100k).

That's pretty interesting. Can you reveal which company this is? MegaCorp?

[aarsmith54]

My company funds my 401k to the IRS maximum $55k without requiring any contributions from me. I am also fully vested immediately. This is in lieu of a higher salary (I make less than $100k).

That's pretty interesting. Can you reveal which company this is? MegaCorp?

It's a small engineering firm with around 200 employees. This is the company's mechanism for profit sharing.

[nolesrule]

Wife's megacorp matches 75% of the first 8%.

I've had varying matches in different plans.
100% match on first 3%
no match
discretionary 3% contribution (which I got one time in 3 years at that company)
50% match on first 6%

[lostinjersey]

I work in benefits for a SV-based company and did some research on this a couple years ago. At the time the most common match structure was 50% of the first 6%. My company offers 100% of the first 6%, which is on the generous side but not overly generous. It is paid every pay period and there is no requirement that employees work a certain number of hours or are employed on the last day of the year. The formula also satisfies the safe harbor rules, if that is a consideration.

[drk]

I am setting up a 401k for my employees.

I am looking for an employer match structure that would be well-received by employees.

New hires will generally receive offers with compensation between $120,000 and $140,000 per year and can expect increases of 5% to 10% per year.

Obviously the "the sky is the limit" when it comes to possible match structures, but I am looking for something that will be competitive--especially when candidates are receiving offers from local companies:

• Apple: 50% of first 6% of compensation.

• Facebook: 50% of first 7% of compensation.

• Google: 100% up to $3000.

• IBM: 100% of first 5% of compensation.

• Lawrence Berkeley National Laboratory: 100% of first 6% of compensation.

(I found this information online--not sure it is completely accurate.)

I would like to have a generous, but reasonable and effective match structure that is attractive to employees, and gets me the most "bang-for-the buck" with my contribution. As always, looking forward to your replies.

A couple of others in the same realm:

• Microsoft: 50% of employee contribution

• Amazon: 50% of first 4% of base compensation

Microsoft also allows employees to contribute $20,000 in after-tax money to allow for the mega backdoor Roth.

[Shackleton]

I work for a megacorp (insurance industry) and we get 100% match on the first 6% of salary with immediate vesting. (I should add that we also get very generous profit-sharing bonuses, which has averaged over 30% of salary for my position over the last 5 years. But there is no matching on the bonus amounts.)

I was offered a position at USAA which offers 100% match on the first 8% of salary with 5 years of vesting (20%, 40,60%,80%, 100%) but also contributes an additional amount to the 401k based on your age. I don't remember the low end, but for anyone over 49 they contribute an additional 9%, for a whooping 17% employer contribution if the employee contributes at least 8%. The also offered bonuses that average 18% of salary, and they contribute/match on the bonuses paid too. I really wanted to take that job, but due to family issues, was not able to.

Additionally, I work in IT, and aside from startups offering RSUs, it seems that most people looking to work in IT at a megacorp consider anything below a 4% match with immediate vesting to be substandard. That is from reading a lot of Glassdoor reviews of benefits for megacorps.

[marcopolo]

Where I work, mid sized high-tech, we get 100% up to 10% of comp, including bonus. 3 year vesting, allows after tax contributions, and in-service rollovers.

I don't think it is necessary to be this generous to be competitive.

The safe harbor plan describe upthread seems quite competitive.

[whodidntante]

I would offer 3% non-elective, so everyone is in the plan including those who "don't have time for it" or "can't afford it right now." I know you said the salaries are good but people can spend any amount of money. Then also offer a matching contribution, e.g. 50% match up to 6% (or more if wish).

Also HCEs will appreciate that it's a safe harbor plan, maybe as much as they appreciate the match.

[The Wizard]

My company funds my 401k to the IRS maximum $55k without requiring any contributions from me. I am also fully vested immediately. This is in lieu of a higher salary (I make less than $100k).

This is moderately incredible...

[Theoretical]

My company funds my 401k to the IRS maximum $55k without requiring any contributions from me. I am also fully vested immediately. This is in lieu of a higher salary (I make less than $100k).

Now that's a winner! Wow!

[lolbatross]

My megacorp does 100% up to 6% plus 3-5% annual contribution. Immediate vesting. Auto enrollment and auto escalating. Traditional and ROTH available. Low cost index funds and target date funds available.

If one adds nothing they get 3%. If one goes for the match they end up with 15%. Great plan that seems to have employees interest at heart... aside from allowing investments in company stock (go get that NUA!)

You couldn’t go wrong with copying my megacorps plan.

[farnsy]

I get 11.5% of salary regardless of my contribution. Pretty generous, but they would save a lot of money if they just did matching because then they wouldn't have to pay for folks who don't save.

Employees who are very mindful of retirement will be looking for the highest match possible. Employees who don't save won't be thinking much about the 401(k) as part of their compensation. Therefore I'd say the best bang for your buck would be 50% match up to a high number. Maybe with no limit. The max you would pay for any employee is $9,250 since employees can only contribute up to $18,500. And that would only be if they max out their saving. Sounds generous but it's actually capped at a reasonable level for you.

[camillus]

My 403(b)

50% match up to 4%, plus 100% of 2% of salary. (So most employees start with 8% of salary.)
That second part scales up with years in the organization. For example, at 4 years it goes to 3%.

Vesting is 3 years, healthcare.

[WS1]

Ask your employees what they want; benefits are nice but compensation is better.

You never know what an employees' individual needs might be. After a decade of lurking on this site, I know the impulse to be slightly paternalistic and get everyone to put 15% into a retirement account is strong and usually on target, but I encourage you to resist that impulse.

What if the employee has a spouse with a military pension and a government 457? The last thing they need is money in a 401k. What if they want to buy an apartment complex instead of buying stocks? Don't make them over contribute to get money you want to give them anyway.

Set a percentage and make it an automatic contribution or at worst require the employee contribute 1% to get it. Set a 2 or 3 year vesting schedule to recoup some of the costs, but please just think of this as regular compensation and not noblesse oblige

[Watty]

In addition to the match also consider allowing other options like a Roth 401k and allowing after tax contributions so people can do a Mega Backdoor Roth.

[Silly Wabbit]

Google: 100% up to $3000.

Google matches, regardless of compensation, 50% of contributions for a maximum matching contribution of 9k in 2017. There's also a lower matching tier, but I don't know it off hand.

There is no vesting period; you're fully vested on day 1.

The plan also supports after tax contributions, in-plan conversions, and in service rollovers (i.e. mega backdoor Roth).

[BreakfastToze]

Google matches, regardless of compensation, 50% of contributions for a maximum matching contribution of 9k in 2017. There's also a lower matching tier, but I don't know it off hand.

Google employee here. It's 100% of $3k or 50% of contributions, whichever's greater.

[DVMResident]

Our very generous plan:
-1:1 match up to 3%
-1:0.5 match for another 1.5%, totally 4.5% match (3 year vest)
-Once a year bonus of 5-10% depending on age and years of service (3 year vest)

As an employer, I'd make mandatory minimum contributions to meet the non-discrimination testing. Also, I'd make all the matches once per year and offset other benefits (e.g. bonuses) dates by 6 months. The employees won't like it, but it helps to preserve resources for the loyal employees that stay.

My current employer sets the annual bonus, RSUs, and 401(k) matches by Dec 31st and distributes Q1. High level employees make 50% (or higher for >VP) of their total compensation in Q1. Guess what happens? We have a flood of exits Q1 every year. Very disruptive. By spreading out the benefits across the calendar year, there isn't a structurally 'good' time to leave. This consideration needs to be made in context of the large benefits package.

[Halfvolley]

My megacorp: matches the first three percent and then half of the next two percent (total of 4 percent contributed by employer when I contribute 5 percent)

Wife's megacorp: contributes three percent and then matches 6 percent (total of 9 percent contributed by employer when she contributes 6 percent)

[Bungo]

Obviously the "the sky is the limit" when it comes to possible match structures, but I am looking for something that will be competitive--especially when candidates are receiving offers from local companies:

• Apple: 50% of first 6% of compensation.

(I found this information online--not sure it is completely accurate.)

I can confirm this data point for Apple: the match is 50% of the first 6% for the first 2 years. The match increases to 75% of the first 6% from 2-5 years, and 100% of first 6% after 5 years. Vesting is immediate.

[ResearchMed]

Our Employer is a very good place to work, in general - a major university.
The benefits are unusually good all along the economic spectrum, including, importantly, health care.

Our 403b has a generous Employer contribution, without any employee contribution required.
That also includes the extra when one is older.

And vesting is either immediate, or after just one year, which would typically appear the same in most situations.

One possible "problem" with the lack of requirement for any employee contribution is that there are probably quite a few (just guessing) who therefore don't contribute anything extra. But far better that they've got the Employer contribution adding up year after year, than nothing...

RM

[HornedToad]

5% automatic contribution from the company
100% match up to 5%

immediate vesting

So if you put in 5% then you get 10%.

As long as you are in the 3-5 % immediate match for 6-8% contribution then I think you are in the same ballpark as most companies.

[employer]

We were 100% match up to 4% of your salary. The match was paid each pay period. We were recently bought by another company and are now 100% up to 6% of your salary but the match is not paid until January after you completed the prior year. If you do not complete the year, no match.

Which of these two choices would be preferred by employees?

[celia]

The only 401k I had was in a tech company in the 1980s. They put in something like 3 to 5% regardless if you put anything in.

[celia]

We were 100% match up to 4% of your salary. The match was paid each pay period. We were recently bought by another company and are now 100% up to 6% of your salary but the match is not paid until January after you completed the prior year. If you do not complete the year, no match.

Which of these two choices would be preferred by employees?

Uhhh.... If they planned to work there long term, they would want 6% each January. If they hated working there or were just using the job as a stepping stone to something better, then they would want the immediate 4%.

[MarkBarb]

For those of us on the old defined benefit pension plan, the 401K match is 100% for the first 6% and vesting is in 3 years. People that arrived after the end of the defined benefit pension get a better 401K deal. I don't know the details of it. My only 401K complaint is that if you hit the federal limit and stop contributing, they stop matching. At my old company, we had a similar setup, but they would continue to put in their 6% if you hit the federal limit.

[Dottie57]

I have think going to a fairly high percent (6-10) and match at rate of 50% with vesting in a short time lke 2 years is very good.

Get employees to invest more re is really good.

[lostinjersey]

For those of us on the old defined benefit pension plan, the 401K match is 100% for the first 6% and vesting is in 3 years. People that arrived after the end of the defined benefit pension get a better 401K deal. I don't know the details of it. My only 401K complaint is that if you hit the federal limit and stop contributing, they stop matching. At my old company, we had a similar setup, but they would continue to put in their 6% if you hit the federal limit.

This is a very good point. Having a match true-up at the end of the year ensures that anyone whose match dipped below the max on some paychecks, but made it up on others, is made whole. It does away with all the deferral-adjusting machinations to hit the max deferral on the last paycheck, and lets employees front load their deferrals without fear of losing out on any match. A GREAT provision and one that employees really appreciate.

[RootSki]

As a Boglehead and a business owner, do you structure your plan to maximize your plan to allow your employees to save as much as possible?

I have a great 401k. 100% match on 6% with low cost index and target date funds. The one feature I wish my 401k offered was after-tax contributions.

[mmmodem]

My previous employer located in Santa Clara a few miles from Google, Facebook and Apple offered 100% match up to 4% of salary with a 3 year vesting period. This had zero effect on my decision to take another job offering 50% match up to 6%. As far as I was concerned as long as they offered this minimum match, it is sufficient for me to take the job.