Missing the 401(k) Plan Match

One key plan design aspect of 401(k) plans and a significant draw for employees and employers alike is the ability of the plan sponsor (employer) to include matching contributions in the plan. Not only do those matching funds incentivize employees to participate in the plan, but they also increase overall contributions in participant accounts. Furthermore, including a match may allow the Highly Compensated Employees to save more in the 401(k) plan.

How can you “miss the match” in a 401(k) plan?

1.  Deferral Percentages That Don’t Meet the 401(k) Plan Match

To receive an employer matching contribution in a 401(k) plan, you (the participant) must first agree to make a salary deferral into the 401(k) plan. Your employer's contribution is called a match because the employer is “matching” the money you're putting into the 401(k) plan.  You must have “skin in the game” as the saying goes.  You can choose to have a certain dollar amount or a certain percentage of your gross pay withheld to go into the 401(k) plan as your contribution.

So, how can you miss the match? First, by not signing up to make a deferral out of your salary. Secondly, and most importantly, by not understanding the matching contribution your employer is making on your behalf and how it is calculated.

For example, let’s assume your employer matches the first four percent of gross pay that a participant defers into the plan dollar-for-dollar. That means, if you defer four percent of your paycheck into the 401(k) account, your employer will match that four percent, for a total of eight percent in total contributions to your account. Let's look at some numbers.

  • Gross Pay on Paycheck: $2000
  • 4% Employee Deferral Contribution: $80
  • Employer Matching Contribution: $80__________________________________
  • Total contributions to the plan: $160

However, if you only defer three percent of your pay, your employer match will only equal three percent of your gross pay or $60 in the example above. You would miss one percent of the matching funds your employer provides (in this example, over 26 pay periods that would be $520 for the year).  In other words, you pass up free money from your employer every pay period. In this example, it’s the same as giving up a guaranteed 100% return on your investment, and you can’t get that type of guaranteed return on any other investment.

2.  Maxing Out Deferrals Early

Another way you can miss the match, which often comes as a surprise to everyone, is by deferring too much out of each pay period early in the year in order to maximize your deferrals early on. This is another reason why it is so important for everyone to understand how the employer’s match is calculated. Oftentimes this scenario even surprises the employer.

There are limits, set annually by the IRS, regarding how much a participant can defer (or contribute out of their pay) into a 401(k) plan. The maximum amount a participant can defer into a 401(k) plan in 2021 is $19,500.

The schedule for calculating and depositing 401(k) matching contributions varies from plan to plan and is normally stated in the plan document and summary plan description. Many plan sponsors opt to calculate and deposit their employer match each pay period. It’s better for the participants because those funds are deposited earlier and can be invested sooner. A plan may also calculate and contribute the match at year-end. Depending on when the plan sponsor chooses to calculate and contribute matching dollars, an employee contributing the maximum amount of deferrals ($19,500 for 2021) may miss some of their potential matching funds if they try to contribute all of it early in the year rather than equally out of each paycheck during the year.  


Mr. Scott, a plan participant in the Enterprise 401(k) Plan, is paid semi-monthly and receives 24 paychecks each year. Each paycheck his gross pay is $3,125. He decides that he would like to contribute $19,500 out of his pay into the Enterprise 401(k) Plan this year. He also decides that he would like to make his contributions to the plan and invest as early in the year as possible.  He decides that he can afford to contribute $1,028 per pay period into the 401(k) plan. His employer will match his deferrals dollar for dollar up to 5% of his gross pay, calculated each pay period. His match each pay period will be $156.25 ($3125 * 5%). He will reach his deferral limit of $19,500 after 19 paychecks rather than using the full 24 pay periods in the year. This means that his total employer match will be $2,812.50 ($156.25 for 19 pay periods). After his last paycheck in September, his deferrals will be $0. Therefore, his employer match will be $0 as well.

Ms. Uhura read her summary plan description. Therefore, she knows that the employer match that she will receive in the Enterprise 401(k) Plan will be calculated and deposited each pay period. If she does not have a deferral taken out of one or more of her paychecks, she will not receive a match for that pay period either. She also makes $3,125 each pay period, and she wants to be sure to reach the maximum deferral of $19,500. She divides $19,500 by 24 so that she will have an equal amount of deferrals taken from each paycheck and by the last paycheck, she will reach her goal of maximizing her deferral at $18,500. She will defer $812.50 from each paycheck and she will receive an employer match of $156.25 each pay period. However, because she spread her deferral out equally over all of her paychecks and made sure that she had a deferral of no less than 5% from each of her paychecks she will receive a total employer match of $3,750 ($156.25 * 24).  Because Ms. Uhura read her summary plan description, made sure she understood how her employer calculated the matching contribution, and she made sure that she was able to defer from each paycheck throughout the year, her total match for the year exceeded Mr. Scott’s total match for the year by $937.50, even though their gross pay and their total deferrals for the year were the same.

Consistency is Key, Knowledge is Power

The key to a successful retirement savings strategy is committing first to consistent savings by deferring a percentage of your pay into a retirement plan. Secondly, it is important to take the time to understand your employer’s plan and how the match is calculated. Finally, you should take advantage of any match your employer may provide and make sure that, at a minimum, you contribute enough to receive the maximum matching contribution available.  Don’t leave free money on the table!

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