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Home » 401K, Retirement Planning, Roth 401K

Does your 401K Match Up Against the Averages?

Last updated by on 46 Comments

Those who have worked at more than one employer in their career have likely come to the realization that employer 401K matching is wildly inconsistent.

I have worked at employers who have matched anywhere from 2% to 7% of salary, and even one that matched in an entirely different way – by percentage of my personal contribution. At the same time, my wife’s employer matches based on an ambiguous end-of-year profit sharing model (which has resulted in a 0% match the past two years). They get an F – in consistency and generosity.

Whatever your employer matches, you should know what the typical 401K match out there is for the following reasons:

  1. It can help you compare total compensation, or real wage, when comparing employer offers. Those employers who skimp on your 401K match are likely to skimp in other areas as well.
  2. It can signal whether or not your current employer is offering a good match that you should not be overlooking while employed by them.

At the same time, vesting schedules can vary widely and should be considered as well.

So let’s dive into the averages so that you can see where you stand.

401K Match

Average 401K Match

According to the Bureau of Labor Statistics, the typical or average 401K match nets out to 3.57%. Their 2010 National Compensation Survey, found that of the 61% of employers who offer a 401K plan (a sad statistic in itself):

  • 49% of employers with 401K plans match 0%
  • 41% match a percentage of employee contributions between 0-6% of salary.
  • 10% match a percentage of employee contributions at 6% or more of salary.
  • The median is a 3% match.

Well, that’s pretty depressing.

401K Matching Vesting

What paints an even grimmer picture on this data are the vesting schedules. Only 22% of 401K matching vests immediately. Also at 22% are ‘cliff’ vesting schedules. These plans require you to stay with an employer for a minimum number of years, or you don’t get any of the match. And 47% have a ‘graded’ vesting schedule – plans that slowly vest the match with every year of service until you hit 100% (usually at 5 years).

On top of that, 32% of employers don’t even allow you to contribute to the plan unless you’ve been with an employer for a minimum of a year. You heard that right, you don’t have the ‘privilege’ of contributing YOUR money to YOUR retirement until after a year at many employers.

401K Matching Takeaways

Considering that most 401K plans are horrible after looking at this data, pensions are going extinct (if not entirely dead already), and Social Security is in question, it’s really every man/woman for his/herself when it comes to a stable retirement. Here is what I take away from this data.

  1. If you get a match, take advantage of it.
  2. If you are in the minority who get a match on over 6% of your salary, GET THAT FULL MATCH EVERY YEAR.
  3. If you don’t get a match at all, open up and contribute to a Roth IRA or Traditional IRA (I house both with TradeKing). Of course, always get free 401K matching dollars before contributing to an IRA. And you might even want to consider a new employer if you’re not getting a pension.
  4. Regardless of match, if you can make the maximum 401K contribution in a given year, do it. The 2014 401K maximum contribution is $17,500.
  5. If your 401K fees are high or you don’t have many investment choices, voice your concern to your HR/benefits department in a constructive manner.

401K Match Discussion:

  • How does your 401K match ‘match up’? How does the plan work and what is the match?
  • How does your employer’s vesting schedule work?

About the Author
I am G.E. Miller, & this is my story. My goal is financial independence ASAP. If you share that goal, join me & 7,500+ others by getting FREE email updates. You'll also find every post by category & every post in order.


46 Comments »
  • PigPennies says:

    We’re somewhere in the middle of those depressing numbers. I don’t have a 401K, but my husband does. He’s been able to contribute since the minute he started working at this company, and his match is deposited with his contribution just after payday. He’s enjoyed a 4% match up until this year when it was cut down to 2%. So, I suppose we’re just barely beating the average!

  • Matt says:

    This has me feeling pretty good. Our 5% match is vested after 2 years and you only have to put in 2% to get the 5%. Not to mention that at my company the Pension plan is not dead

    @PigPennies – just because the matches show up in his account doesn’t mean he gets to keep them. He may still have a vesting period to make before they are his for the taking.

    • G.E. Miller says:

      Wow, 401K match and pension? That’s hard to find. Can you share where you work, or at least what type of job?

      • Dustin says:

        I work for Northwestern Mutual Life Insurance. They offer a 50% match of your contribution up to 6%, handled by Vanguard. Vanguard also gives NM employees the option of contributing to a Roth 401k, Standard 401k, or both. I contribute 6% to the Roth 401k (plus the company match) and an additional 7% into my Standard 401k.

        In addition, we have a pension plan in which an employee is fully vested after 5 years of service. You make no mention of when a company pension plan begins payments…which I think can be very important. For example, my pension begins payments upon retirement at age 67, recently increased from age 65 (in Jan of this year), which was recently increased from age 60 (few years ago). By time I retire, I expect to be fully vested but I doubt it will pay out until 70+.

        I plan to retire by age 60…so I’m trying to find a means to bridge the gap I’ll have between retirement and when I begin to receive pension payments (unless I take the 29% penalty for early withdrawal).

      • Matt says:

        Fortune 100 Pharma company.

      • SD Lurker says:

        My company matches the first 3% into the 401k plus we get a 7% annual contribution into an employer funded pension. It’s a Defense & Energy R&D company with a high proportion highly educated technical people (engineers & scientists). They probably have to maintain that level of benefits to compete in the technical market.

  • Findep Man says:

    At my job, salaried employees are eligible after two months of service. Temporary or hourly employees are eligible after one year of service. The plan went through an overhaul in July of 2010 – the enhanced plan is as follows:

    The company provides a maximum match of 7% if you contribute 6% of your eligible pay. This means that the company match will provide 133% ($1.33) on each dollar you contribute up to the first 3% and 100% ($1.00) on each dollar you contribute on the next 3% of eligible pay. This means that if you contribute 6% of your pay, and the company contributes 7% your effective contributions before vesting is 13%.

    We also now enjoy accelerated vesting. As of July 2010, employees are 100% vested in new matching company contributions after only two years of service instead of 5 years. Current service counts toward vesting, so if you had more than two years of service prior to July 1, 2010, you would have been fully vested in any new matching company contributions to the 401(k) Plan. Any company contributions made before this date continued to vest according to the current five-year vesting schedule.

  • Ron Ablang says:

    I work for a branch of local government so no 401k, but we do have a 457b w/ Fidelity as the fund manager. No matching.

    Does anyone who works for government get a match anywhere?

  • gladtoshare says:

    Although I always recommend to max your 401k. I was curious how whole life insurance work with 16500 premium 30 yr. old male non tobacco.

    20 years fully paid total premium 330k

    When he is 50 years old his guaranteed cash value is 367,582.00 with guaranteed death benefit 1,050,956.00.

    With current dividend rate at age 50 cash value 496,483.00 with death benefit 1,419,416.00.

    When he reaches 65 guaranteed cash value 573,202.00 and guaranteed death benefit of 1,050,956.00.

    With current dividend rate at age 65 cash value 1,178,467.00 and death benefit of 2,160,699.00

    He can have a good amount of distribution during his retirement years and still have some cash value and death benefit left not to mention tax advantages he can avail. And if he die earlier done expected he left a legacy to his family.

    Cash value can also be handy during a down market.

    • G.E. Miller says:

      I’ve always been a fan of term-life, but cash value is looking more appealing in turbulent times.

    • Amanda says:

      If you are thinking about doing this, I would compare the cost of a “cash value whole life” with a term. What would happen with the excess if you invested in an ETF averaging a 5% return? A friend’s parents spent $230 a month on her whole life insurance for 8 years. When she got married, they decided to cash out and get a 25 year term (paying $27 a month). She received just under $1000 in “cash value” because of the fees of cashing out early (after $22,000 paid). So if you want to use it as back-up money, you better know how to work the system (if it can be done).

      If that $203 difference were in a 5% investment, it would be worth $120K at the end of the term, and $300 K at 65 (starting at 25). I’d rather have that in my back pocket than having the mystery of a “guarenteed” return from a company trying to make money off of me, not for me. But that may just be me.

      • J Lane says:

        @Amanda – Without going too far off the topic, there were a couple reasons why the returns for them weren’t so attractive or why whole life insurance can be as competitive as an ETF.

        - ETF, especially at 5%, is assuming the full risk of market volatility (which varies depending on asset class) compared to, say, a 5% dividend rate for whole life that doesn’t assume any direct market volatility (though the dividend rate will be subject to performance of the company’s general investment portfolio, such rates are generally very stable and move either direction slowly). Thus, by choosing permanent insurance rather than an ETF, you avoid market risk and volatility.

        - Generally, speaking, whole life also requires long-term perspectives, much longer than, say, 8 years. Permanent insurance is frontloaded with its costs, commissions, etc. – thus it takes the better part of the first 10 years to break even past the actual costs of the insurance. That’s why the examples listed above make financial sense – because the shortest time period is 20 years (Male age 30 to age 50) and even then it becomes more and more and more attractive with longer time periods, in terms of both guaranteed and non-guaranteed cash values, due to primarily to interest compounding.

        - It also very much matters with whom you place your whole life insurance, as the quality of the company determines whether it will, can, or cares to meet its illustrated value projections. I’m a Peace Corps volunteer, so I have no personal stake in plugging one company or the other, but generally speaking mutual companies tend to perform better than stock companies with whole life products (since dividends are distributed to insurance policy owners, particularly to whole life owners, rather than shareholders) and generally speaking Northwestern Mutual, New York Life, and Mass Mutual offer the most profitable products. The stronger the companies, the less chance you will have to depend on the “guaranteed” cash value (which is frequently low and not typically lucrative) and the more chance you will actually experience the “non-guaranteed” values.

        - Finally, permanent insurance is usually a good personal financial hedge rather than primary driver of investment gains. It’s like Tier 1 Capital for individuals (though many large corporations employ permanent insurance for just that reason). While one could argue that it shouldn’t REPLACE a annually diligently maxed out 401(k) and Roth IRA, it can serve as a very lucrative (if in the hands of the right company) longer-term “reserve” that is not subject to market risk, provides an “emergency fund” for retirement (rather than an emergency fund for newlyweds), and it experiences many of the same benefits of a Roth IRA (that’s to say, post-tax contributions, tax-deferred growth free of capital gains etc, and tax-free distributions…in this case in the form of a policy loan).

  • Jason L says:

    I now work at a startup that doesn’t even match employees’ 401k, so there’s really not much point in me contributing to it. The other companies I’ve worked for in the past all had a 50% match of your contribution up to 6%… this seems pretty standard for tech companies.

    And pension… what’s a pension? :)

    Jason

  • Alyssa says:

    No 401K options for me at work :( Granted I work at a small business, but still.

  • Danielle says:

    I have an awesome 401(k) match with the larger company that recently acquired my smaller company. Before the acquisition, our 3% match had been suspended for a year and a half. After the acquisition, we were immediately welcomed into the 401(k) matching of our new owners, which is 50% up to the maximum contribution. I immediately started contributing the max of $16,500 per year, meaning I get $8,250 matched. Not only that, but they offer a Roth option, so that’s where my entire contribution goes. On top of that, they vested us based on our start date with the original company, so I was fully vested immediately.

  • Tuan says:

    My employer matches an average of 4% of your annual salary. However, depending on how much you put in and/or how long you’ve been with the company the match changes.

    If you have been with the company for more than 5 years (we have the usual cliff vesting 20/40/60/80/100) the match increases to 7%.

    Or

    If you invest in the max allowed (e.g. $16,500) it will be a 10% match no strings attached.

    • MoneyIsTheRoot says:

      @Tuan – It seems like they should just contribute the additional percentage right away, but not vest you until you have been there for 5 years…it benefits them to hold onto the money, and unfortunately, even if you were never vested you would still have earnings based off that principal in your account, which they cant take away. Although I love the 10% match if you max it out, what a great motivator!

  • MoneyIsTheRoot says:

    My 401k match has been inconsistent throughout my career. My first company out of college matched dollar for dollar up to 4% of my salary. My second employer matched 6%, which was generous, but then after receiving government funds in order to remain capitalized, they cut out 401k matching for a year. The third employer contributed on average 10% a year, at year end…this actually hurts a little because you dont receive gains on invested money all throughout the year…not to mention I was laid off before my first contribution. My current company (yes I have bounced around a bit) matches dollar for dollar up to 5%, and adds in a quarterly 2% contribution as a perk, which is vested after 3 years. This is pretty standard in many Metro Detroit companies Ive found. I contribute 10% of my salary, and I have since my second year out of college and I began learning the benefits of doing so. Id like to start contributing more soon, but I recently bought a home and it seems like everything costs a ton!

  • Pam says:

    The last company I was with, they had the profit share. I hated it. You never knew how much you were going to get. On top of that, it wasn’t dependent on your contribution, but instead on what perecentage your compensation is divided by the total compensation for all employees. So if you’re underpaid (or, for that matter, a woman), the pay difference gets compounded.

    I now work for a company that will contribute 2% even if you contirbute nothing. This percentage increases over years of services. In addition to that they match up to 4%. So for max match, I contribute 4% and they contribute 6%, which is SO much better than my last plan. You’re also 100% vested from the first day you contribute- also awesome.

  • Patrick Sievert says:

    I work for the second most hated company in the world (or at least the US). They match 100% for the first 4%, and 50% for everything over 4% up to 6%. So basically, as long as you put in 6%, they put in 5%. It’s pretty good. Not to mention, they typically give you an additional 4% at the end of the year regardless of whether you contributed or not. It depends on how the company did, but so far they haven’t cut that out. So basically you get 9% if you contribute 6%.

  • Patrick Sievert says:

    Halliburton.

  • Anonymous325 says:

    My company puts in 10% of your salary no matter what you put in, but you have to be there a year before they will do that. You can contribute yourself from day 1. We have a Roth 401K option and a normal 401K, and cliff vesting. I feel very blessed to have this high match.

    The one thing I hate is that I just hit the highly compensated employee (HCE) salary threshold (this is an IRS rule that really stinks), and I only make a about 111K. The impact is that now I can only put in 10% of my salary (about 11K) instead of about 15% which allowed me to put in $16,500 (the max). It stinks to be penalized!

    There are ways my company could legally restructure the plan so HCEs like me could contribute the max, but I think it would cost them more. Still, I am not complaining, well maybe a little… I know the 10% match is still really good. So folks the moral is, max your contributions for as long as you can, because once you hit around 111K you may not be able to max it anymore, depending on how your plan is structured.

  • Anonymous23123 says:

    I know my matching is unheard of. I get a 200% match up to the IRS Maximum (16,500). So if I put in 16500, they put in 33,000 on top. It is invested immediately and you get this from the day you start working here.

  • Guest says:

    The reason for these statistics is what is called Safe Harbor. They are requirements of the 401(k) plans that give the companies a free pass on Top Heavy Testing that is required each year to make sure the big wigs don’t get a better benefit package than the rank-and-file workers. This statistics are right in line with the Safe Harbour options availible to companies that offer 401(k) packages.

  • nachista says:

    My employer just went from a 9% 401(k) contribution (starting after 1 year of employment) to up to a 3% match prorated on your length of service (you have to have worked here 5 years to qualify for the match) and your own contribution. Talk about depressing sign of the economic downturn. The 9% contribution was why I took this job in the first place over a job that paid slightly less but had better medical/dental benefits. I guess prorated 3% is better than a kick in the head.

  • Michael says:

    Our company matches $1 for $1 to 100%, so a $17k contribution nets a $17k match for $34k.

    I’ve never had less than a $1 for $1 match in the last 3 companies, but none of them have ever come close to maxing at 100%.

  • Adam says:

    One thing i think is seldom articulated when discussing percent match is if the match is a percentage of your contribution or of your eligible salary. my 401k is the latter. they contribute 100% on the first 2% of my salary and then 50% of the next 4%. i’m not a fan of the layers of comlication so for my purpose and simplicity i say they match ~4%. but that is of my eligible salary NOT my contribution. they also have a $2k automatic annual employer contribution for participants older than 5 yrs regardless of employee contribution level. i contributed the max 16500 in 2011. the total amount into my account including my employers matching and automatic contributions was 24833. that’s roughly $8000 in free money and if you consider the percent with respect to what i contributed i’m getting roughly 50% return on investment. when you consider the tax implications and the fact that that same $16500 would have only been $12000 in my pocket after uncle sam got his share the return on investment is astronomical. so for a cost of $12000 that could have gone into my pocket i get $24k+ and years for it to grow. i am 28 yrs old. just my thoughts for what theyre worth, but they’re working out well for me :D

  • Bobby says:

    Does $17k limit for 2012 include the employer match or is this something I can personally contribute?

  • Tony says:

    Can someone help with this question?

    I am in a graded vesting schedule with retirement matching starting on the first January 1st after 500 hours worked in previous 6 months. It is a 20% per year starting at after 2 years of vested service. I started contributing with my first paycheck.

    I got hired Nov. 2010, worked a full year in 2011 and 2012 with matching beginning January 1st, 2012 (first eligibility). I believe I should be at 20% vested beginning January 2013. I am correct in this logic, right? (Not that my first step of vested would come after 2 years of THEIR MATCHES.)

    I’m sure I’m thinking too much into this as I can’t find this info ANYWHERE online.

    Thanks for your help.

  • ChicPhil says:

    I know this is really late but Anonymous23123 wasn’t blowing smoke. There are quite a few employers out there who offer 200%. These are usually non-profits or various levels of government. Mine offers a 200% match but the downside is that there is a longer vesting period.

  • Curious says:

    I am retired but, my partner works for a company who announced at the end of 2012 that they would only match those employees contributing 4-6% of their paycheck to their 401K. Any contribution below that would not receive a match by he employer. Now just this week they have come back to tell them that was mus-information. They will match HCE at 4% or higher and LCE’s at 6%. Most of the lower compensated employees had a hard enough time putting in the 4% and most cannot afford to put in the 6%. I thought that if they offered to match they at to match everyone at the same percentage rate. Is there something wrong with this picture or is it perfectly okay for the employer to discriminate against the two brackets of compensation?

  • Marta says:

    Wow, pretty dismal statistics! I’ve been with my company, (a SMB tech company) for six months and I just found out they only contribute 6% of my contribution amount, so no match here. This means if I end up contributing 6% of my salary, they end up contributing $144 a year.. As well, there is no information on vesting. Is this normal?? And is it even worth contributing? I’m good at saving but am wondering if it would be better to invest my money elsewhere.

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