Discover the Surprising Benefits of Matching Your Employees’ 401(k) Contributions – Don’t Miss Out on These 3 Must-Know Factors!

Employer matching contributions to retirement plans they are often viewed as costly commitments by business owners. As is, 48% of private sector workers in the United States do not have access to a 401(k) or pension plan, according to an AARP study. However, for employers, they are worth investing in.

Companies are beginning to understand the positive effects matchmaking can have on employee loyalty. Offering a 401(k) matching program provides countless benefits to both employers and employees. For example, a 401(k) match may seem expensive, but it is one of the most profitable profits you can offer your employees. A match is tax deductible for you, which reduces your after-tax burden.

Related: Looking for Talent? Consider setting up a 401(k) for your small business to keep up with the market.

3 Things to Remember About 401(k) Matching

It’s important to take the time to make an informed decision and put your company on the right track to provide a secure retirement plan for your team. Consider these three things when deciding whether or not to offer a matching 401(k) to your employees:

1. Consider how it will affect your recruitment and retention efforts

Offering a matching contribution can be a great way to recruit and retain star employees. For an in-demand candidate, a matching contribution can make an employer stand out. A matching program can also boost an employee’s retirement savings. Savings of 10-15% for retirement are generally recommended, but when you make a contribution, this requirement is lowered, making it much easier for employees to reach their retirement goals.

Employers tend to offer a supplement to a certain percentage of an employee’s salary. Suppose someone earns $50,000 per year; a 3% match would be $1,500. Consider whether your business can afford a match, but also remember that the cost is sometimes worth the loyalty.

Because loyalty is a factor, many large and well-known companies participate in 401(k) matching programs and match certain percentages up to IRS contribution limits. For example, Amazon and Apple match 50% of employee contributions up to 4-6%, respectively. Apple will match 50 or 100% of employee contributions up to 6%, depending on how long the employee has been with the company. Netflix matches 100% of employee contributions up to 4%.

Related: 12 Pro Tips That Will Increase Company Retention

2. Consider your cash flow and predictable business growth and expenses

When it comes to your matching contribution, you have two main options: you can pay on payroll, or you can wait until the end of the year and fund it all at once. Depending on the financial flow of your business, either method could make sense. In general, it is preferable for payroll, since you will have to post the equivalent amount in your cash flow planning If you wait until the end of the year. So depositing money into accounts on the go is often easier.

For payroll matches, if your company chooses to match 50% for up to 6% of savings, an employee who contributes 6% to a paycheck would receive their 3% match during the same payroll period. Employees often favor this as it gets their matching dollars into their retirement accounts almost immediately. If an employee stops contributing at any time during the year, their employer would have nothing to match, resulting in a retirement deposit.

For year-end matching, the plan reviews how much each employee contributed in total after the year ends. Using the match formula, the company calculates the match amount owed to the employee and makes the one-time contribution. These contributions typically occur in late winter or early spring of the following year, so it can be a long wait for employees. If they contribute in 2023, they may not get their contribution until well into 2024.

The annual match benefits some employees if they have changes in income. Someone who saves 10% for the first half of the year and then drops to 2% in the second half could get a whole match. That may not work as well in the payroll process.

3. Consider whether now is the right time to start matching at all

If your business is struggling, you may not be able to fund a 401(k) matching program. Turning a matching program on and off is extremely difficult to explain to employees: even if you gave them advance notice. Ultimately, the value of a employee benefit it is not defined by a company or its owners. It is determined by the employees themselves. Your experience trumps any owner or leader’s beliefs, so be sure to consider how your employees feel before you implement anything.

Alternatively, you could offer profit-sharing contributions when the company does well. Profit sharing is a component of your 401(k) plan where companies can make a discretionary deposit to employees. Companies may choose to go this route if they are in a volatile industry that has extreme ups and downs in cash flow. This can be a great way to alleviate 401(k) matching concerns if you can’t implement that benefit.

Related: What is a 401(k) and how does it work?

When choosing the type of matching contribution that’s best for your business, consider your budget and cash flow, as well as the expectations of your employees. A 401(k) matching program can boost employee morale and encourage your team to save for retirement. It can also help you recruit and retain top talent. Take the time to review all of the available options and choose the type of match that will work best for your organization.