The Role of Employer Contributions in Your Small Business 401(k) Plan

Author: / 6 Feb 2023 / 401(k) Plan Information

Does your small business offer employer contributions with your 401(k) plan? For many small businesses, the answer is no – but offering employees a match benefits more than just them. There are plenty of advantages for you as a small business owner, including tax breaks, greater retention, and so much more.

Understanding the types of employer contributions

Employer contributions can be made in a variety of forms, including matching contributions and profit-sharing.

  • Matching Contributions: With this type of employer contribution, you’ll match whatever amount an employee contributes up to a certain percentage of their salary (i.e., if an employee contributes 5% toward their retirement savings plan by making payroll deductions each month, then you’ll add another 5%). This encourages employees to save for retirement because they know you’ll match every dollar they set aside to a certain point.
  • Profit Sharing: This allows qualifying employees a share of revenues generated over time or net profits earned during any given year (or other criteria, set by you). There may be restrictions regarding how much money can be withdrawn annually.

Advantages of employer contributions

From an employee’s perspective, an employer match is often an important part of the full benefits package they weigh when deciding whether or not to accept a new job or promotion. By offering a match, you make your small business more attractive to a wider variety of talent, and better able to compete with larger corporations.

Employer contributions can also be a powerful retention tool. When your small business 401(k) plan includes an employer match, it’s an easy way for your employees to see that they are valued and that you care about their future.

By offering a 401(k) match, you also enhance retirement savings for employees who might not otherwise have enough money saved up for retirement on their own.

And of course, there are tax benefits for both employers and employees when it comes to making 401(k) plan contributions.

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Factors to consider when making employer contributions

If you’re looking to offer employer contributions to your small business’s employees, there are a number of things to keep top-of-mind.

  • If you opt into a new comparability 401(k), you can adjust the amount you contribute to different groups of employees. While it might feel good (and make a nice tax deduction) when everyone gets a 7% match from their employer, this isn’t always practical. You can consider focusing on rewarding certain employee groups rather than giving everyone the same contribution across the board.
  • Whether there are any restrictions around how much money goes into each person’s account, or if there are limits on how much can be invested per year.

How much does an employer typically match in the US? Find out here.


Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

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© 2023 Ubiquity Retirement + Savings
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44 Montgomery Street, Suite 300
San Francisco, CA 94104