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:
- 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.
- 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.
Average 401K Match
According to the Bureau of Labor Statistics, the typical or average 401K match nets out to 3.5%. Their wage survey found that of the 56% 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.
- If you get a match, take advantage of it. 401K matching is one of the best ways to get the most out of your 401K.
- If you are in the minority who get a match on over 6% of your salary, get that full match every year.
- If you don’t get a match at all, open up and contribute to a Roth IRA or Traditional IRA. 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.
- Regardless of match, if you can make the maximum 401K contribution in a given year, do it. The 2023 401K maximum contribution is $22,500 (+$7,500 if over age 50). Your employer’s 401K match is not a suggestion or a maximum – it’s simply a free match, you can and should go beyond.
- 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?
- Solo 401K Basics for Self-Employment
- The Best Retirement Account: Ranked by Contribution Priority
- 401K Loan Overview: Should you Borrow from your 401K?
- What if you Over-Contribute to a 401K?