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Types of employer matching contribution options
Updated over a week ago

A 401(k) employer match is money your company chooses to contribute to employee 401(k) accounts. The amount you contribute is based on the percentage an employee chooses to defer up to a set threshold.

Though not required for most plans, employer contributions serve as a great vehicle for boosting employees’ retirement savings engagement, improving your 401(k) plan participation rate, and, in some cases, increasing your plan’s likelihood of passing annual nondiscrimination testing.

Guideline supports 2 primary match options for your plan: a safe harbor match or a discretionary match.

Safe harbor matching

A safe harbor plan helps ensure all eligible employees are provided a fair opportunity to benefit from the plan. While there are a few variations of safe harbor plans, the employer matching must follow a specific formula.

Here are examples of safe harbor matching contribution formulas:

Traditional Safe Harbor

QACA Safe Harbor

Basic match

100% of the first 3% of employee deferrals, plus 50% from 3-5% of employee deferrals. For a maximum of 4% match.

100% up to 1% of employee deferrals, plus 50% from 2-6% of deferrals. For a maximum of 3.5% match.

Enhanced match

At least as much as the traditional basic match at each tier of the match formula, but cannot provide matching for deferrals over 6%.

At least as much as the QACA basic match at each tier of the match formula, but cannot provide matching for deferrals over 6%.

You can learn more about traditional and QACA safe harbor plans here.

One major benefit of safe harbor is that the plan will automatically be deemed to pass certain annual nondiscrimination testing.

Any changes or suspensions made during the plan year to the safe harbor match will result in a forfeiture of safe harbor status. The plan must continuously offer the same safe harbor match contribution with every payroll cycle from January 1 through December 31 to remain eligible for safe harbor.

For Guideline plans, safe harbor match contributions can only be added to an existing plan with a January 1 effective date, and notice must be provided to employees at least 30 days in advance. To meet the 30-day window requirement, the plan document must be updated by November 30 of the year prior to the effective date. To add a safe harbor matching provision to your plan, reach out to our sponsor support team.

Discretionary matching

A discretionary matching contribution allows you to decide which percentage of employee deferrals to match and provides flexibility to adjust matching amounts as business needs change. For instance, if you chose to offer a 25% match of employee deferrals up to 5% of compensation, you could decide to change or suspend this discretionary match going forward at any time.

Guideline plans with discretionary matching contributions are not exempt from nondiscrimination testing (ADP and ACP testing will apply and the plan may be subject to Top-Heavy minimum contributions). Vesting schedules can apply to discretionary matching contributions, which can help reward long-term employees, and forfeitures of unvested amounts can be used to offset future employer contributions.

Plans with a discretionary match are also subject to some notice requirements, although the notice is not required to be provided in advance of the matching contribution being made.

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