How Much Do Companies Typically Match on 401(k) in 2021?
Dylan Telerski / 9 Apr 2021 / Business
Whether you’re a small business owner or employee, seeing how much other companies match on their 401(k)s can give you a valuable measure of how generous your own plan is, and help you to adjust your own contributions.
Given the economic uncertainties resulting from the COVID-19 pandemic, many employees may be wondering if company matches will be reduced in 2021, and if so, how this will affect their savings goals for the year.
The good news is that though an estimated 11.5% of small companies suspended or reduced their employer match during the COVID-10 crisis of 2020, most of these employers said they plan to reinstate the matching contributions in 2021. Overall, about 51% of employers who offer a 401(k) also provide matching contributions.
If your employer is increasing their match in 2021, it could be a great opportunity to take advantage of this free money and set more ambitious savings goals. If your employer decreased their match in 2020 and will not be restoring their contributions to previous levels in 2021, you may want to consider increasing your own contributions to make up for the shortfall.
No matter what strategy you choose, investing in a 401(k) plan is one of the best ways to ensure a comfortable retirement. Small business retirement plans that offer employer-matched funds provide a generous incentive to encourage employees to save as much as they can.
Partial 401(k) Matches in 2021
Some employers choose a partial match plan, which means they put in a portion of the amount you put in, based on a set formula, up to a certain amount. The typical partial 401(k) match is 50 cents on the dollar, up to 6% of an employee’s salary. So, for instance, an employee earning $100,000 a year might contribute up to $6,000 and receive $3,000 from the employer in matching funds.
Full 401(k) Matches in 2021
Employers can also choose a plan with a “dollar-for-dollar” match, with the most common being dollar-for-dollar, up to a maximum 5% of an employee’s salary. So, using the same example, the employee earning $100,000 might put in $5,000 as 5% of his salary. The employer would then contribute another $5,000. If the employee put in $2,000, the employer would contribute $2,000. If the employee put in $6,000, the employer would contribute $5,000, as per the policy limit.
Safe Harbor Matching Formulas in 2021
Another type of 401(k) plan, popular particularly among small businesses with a handful of highly compensated employees, is the Safe Harbor plan – which exempts them from annual auditing and nondiscrimination testing, in exchange for agreeing to make generous and fully vested 401(k) contributions to all eligible employees.
The most common formulas for 401k matching contributions are:
- Basic Match: 100% match on the first 3% put in, plus 50% on the next 3-5% contributed by employees.
- Enhanced Match: 100% match on the first 4-6% put in.
- Nonelective Contribution: 3% (or more) of employee compensation, regardless of employee deferrals.
401(k) Limits in 2021
Since 401(k)s are tax-advantaged savings plans, the Internal Revenue Service places an upper limit on what may be contributed by employers and employees each year. The maximum Traditional and Safe Harbor 401(k) limits in 2021 are:
- $19,500 in employee contributions.
- $6,500 in additional employee catchup contributions for those over 50.
- $38,500 in employer funds OR $58,000 (plus $6500 catchup if applicable) in total employer/employee funds.
SIMPLE 401(k) Limits
SIMPLE 401(k) limits are $13,500 for employee contributions. Those over 50 could contribute another $3,000. Employer 401(k) contributions are subject to an employee compensation cap, which is $290,000 for 2021.
Who Is Offering Generous Company 401(k) Matches in 2021?
Some of the more generous plans in 2021 include:
- CitiGroup – Dollar-for-dollar match up to 6% pay, plus an additional 2% pay regardless of contributions.
- Southwest – Dollar-for-dollar match up to 9.2% of employee pay.
- Vimeo – Dollar-for-dollar match up to 10% of employee pay, plus stock options.
- Walmart – Dollar-for-dollar match up to 6% pay.
- Qualcomm – 100% match up to the first $1,500; 50% match for the next $1,500; 33% match for the next $7,500; 10% match on any additional contributions up to the IRS limits.
Ubiquity is a leading provider of small business 401(k) plans. We are happy to help you start a new plan, change an existing plan to a different type, or arrange employer matching contributions. When you choose us as your plan administrator, we communicate with employee plan members to ensure they know how to reach contribution limits and maximize their retirement savings. Contact us to set up your affordable and easy 401(k) plan today.