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Company Match

Company Match in the context of the 401(k) industry refers to a contribution that an employer makes to their employee’s 401(k) plan based on the employee’s own contributions. It is a common feature of many 401(k) plans and serves as an incentive for employees to contribute part of their salary to the plan.

Here’s how it typically works:

  • Match Rate: Employers might match employee contributions at a specific rate, such as 50 cents on the dollar.
  • Cap on Match: There’s often a cap on the match, such as up to 6% of the employee’s salary.
  • Vesting Schedule: The employer’s contributions might be subject to a vesting schedule, meaning the employee gains full ownership of the employer contributions after a certain period of time.

Employer matching contributions are considered a valuable benefit because they represent additional money towards the employee’s retirement savings, effectively increasing the employee’s compensation without increasing their taxable income at the time of the contribution. It also encourages employees to save more for retirement: if an employee doesn’t contribute enough to get the full match, they are essentially leaving free money on the table.