How Much Do Companies Typically Match on 401(k) in 2020?
Author: Siân Killingsworth / 4 Aug 2020 / Business

Getting insight into how much companies are matching on 401(k)s in 2020 will help you know how well your employer stacks up and whether you’re in the right ballpark with your contributions.
Long gone are the days where a full pension or government stipend will guarantee you a secure future. These sources of income typically comprise less than half of what you would need to live comfortably in retirement. A 401(k) investment account is one of the best strategies to bridge the gap and save enough money for your post-retirement years.
In addition to the contribution deducted from your paycheck, about 51% of employers offering a 401(k) agree to match a certain amount of employee contributions. This generous bonus is literally FREE MONEY that employers add to your retirement savings that will gain interest and compound over time to help you reach your goals faster. There is, however, one caveat to the employer match – in most cases (with the exception of a Safe Harbor nonelective match), how much you receive depends on how much you put in.
Why Do Employers Match 401(k) Contributions?
Why would employers match 401(k) contributions? Perhaps the foremost reason is that employers view the matching contribution as a means of attracting and retaining top talent so that they don’t have to continually hire and retrain a revolving door of workers.
It’s also in their best interest to encourage as many eligible employees to participate in the plan and save as much as they can so the highly-compensated employees and business owners can contribute the maximum amounts to their own plans without failing annual IRS tests for fairness and nondiscrimination.
Favorable tax benefits make it even easier for companies to offer this benefit to their workers. Employers can deduct 100% of their matching contributions on their federal income tax returns, as well as 25% of what all eligible employees contribute.
How much will you pay for 401(k)? Get an instant quote.
(just me/or my business partner/spouse)
Or schedule a free consultation with a retirement specialist.
What Is the Best Possible 401(k) Employer Match?
Employers rarely match 100% of employee contributions. Even if they do, there is a limit mandated by the IRS. For 2020, employees can contribute up to $19,500 to their 401(k) accounts. Employers can contribute up to $37,500 to reach a combined employee/employer total of $57,000. Employees over 50 can add $6,500 in “catch-up contributions” as well. So that would represent the best possible match – an extra $37,500 put toward your retirement.
How Much Do Companies Typically Match?
More commonly, companies follow a formula to determine their matching contribution. A “50% match” means that for every dollar an employee puts in, the employer adds 50 cents. A “100% match” means the employer puts in a dollar for every dollar the employee contributes. On average, companies donate an extra 4.3% of a person’s pay into their retirement accounts as a bonus.
A 2019 Vanguard study identified the most common 401(k) match scenarios:
- About 71% of companies choose: 50% match, up to 6% of the employee’s pay
- Another 21% of companies prefer: 100% match on the first 3%, 50% match on the next 2% (Safe Harbor)
- 6% of companies selected: A single or multi-tiered formula, capped at a certain amount (like $2,000)
- 2% of companies opted for: A variable formula based on age, tenure, and other variables.
The Bottom Line:
Financial advisors recommend contributing enough to receive the maximum employer match, though you can always contribute more as long as you don’t exceed your $19,500 limit. Turning down free money doesn’t make sense unless your 401(k) performance is so poor it’s not generating returns. Consulting with the 401(k) plan provider can help you ensure you’re on track to reaching your savings goal. Just be sure you’re signed up with a fee-only small business 401(k) provider like Ubiquity who doesn’t erode your savings by charging for Assets Under Management or Per-Participant fees.