The Pros & Cons Of Offering A 401(k) Match

The Pros & Cons Of Offering A 401(k) Match

July 02, 2019

When you work with business owners, you end up helping them with a lot more than just investments, insurance, and other typical personal financial planning topics. Some of them likely sponsor 401(k) plans and end up asking you a lot of questions about them. One of the most common questions business owners ask is “Should I offer a 401(k) match?” 

While most employees would answer that with a quick “Yes!”, it’s a little more complicated than that for business owners. There are a number of pros and cons that need to be taken into consideration when deciding whether or not to offer a 401(k) match.

401(k) Matches: Pros For Employers

One of the most common reasons plan sponsors match contributions is to attract and retain talent. And the statistics back this up. One survey found that 81% of employees say that retirement benefits make up a major portion of a job search. (1) Another survey found that 80% of workers would keep a job with benefits rather than take one that offered more pay and no benefits, and a 401(k) match was the most highly valued benefit among respondents. (2)

Closely related, these statistics also show the importance of offering a 401(k) match for employers who want to stay competitive in a tight labor market. Unemployment has been near record lows for several years, and employers looking to expand are feeling it. Offering matching 401(k) contributions helps a company get ahead of its competitors.

Plan sponsors also get a financial benefit for matching contributions. All matches can be deducted on their federal income tax return and are often exempt from state and payroll taxes. Because of this, it is actually cheaper to offer employees matching contributions than to give them the same amount of money as wages. 

Finally, offering a 401(k) match entices more people to participate in the plan. This is important for ERISA compliance reasons. The IRS doesn’t want a company offering a retirement plan that only benefits the owners and top employees. So they require a certain level of participation among the rank-and-file workers for the higher-level people to be able to participate fully. If your business owner clients want to get the most out of the plan they sponsor, they need to incentivize their workers to participate as well, and offering a match is one of the most effective ways to do that.

401(k) Matches: Cons For Employers

As can be expected, the biggest downside to offering a 401(k) match for employers is the cost. It simply costs money and there is no way around that. Contributing to employees’ retirement accounts will affect the bottom line, even if it is tax-deductible. 

The other disadvantage of offering matching contributions is that it is simply more work. Calculating and making contributions takes time and effort. If it is company staff managing it, they may need additional training and there are more opportunities for mistakes. If the responsibility is outsourced to a third party, they may charge higher fees for their services. Either way, the extra work involved will cost either in fee dollars or in man hours. 

We’re Here To Help

While there are clear downsides to offering 401(k) matching contributions, there are also very compelling reasons why your clients should at least consider it. If you or your clients have questions about the benefits of matching contributions or would like help adding it to the 401(k) they already sponsor, email me today at

About Kenny Phan

Kenny Phan is a Managing Partner at FinancialFocus Retirement Plan Services. He works as a pension specialist who partners with financial professionals to design and implement pension plans. His area of expertise is customized defined benefit, defined contribution, and 401(k) plans. Serving financial advisors and businesses around the nation, he is supported by FinancialFocus Retirement Plan Services. Together, they provide comprehensive plan design consultation, administration, document installation, compliance testing, as well as IRS and DOL reporting for qualified retirement plans.