Are Company matching contributions required to be part of a 401(k) Plan?
No. Matching contributions are optional. However, many employers elect to incorporate a matching contribution provision in the plan. This is usually done for a variety of reasons, including: to attract and retain employees, to remain competitive with industry standards, to encourage eligible employees to participate under the plan, and/or for tax incentive purposes. If the employer offers a matching contribution, the employer determines what the matching ratio will be: for example, he may contribute $.25, $.50, or $1 for each $1 an employee defers. He also may elect to match deferrals only up to a certain percentage of the employee’s compensation. For example, the plan may allow employees to defer up to 10% of compensation. The employer match, however, may be made only on deferrals up to 6% of compensation. The matching ration can also be tiered, for example, $1 match per $1 deferral up to 6% of compensation and $.50 match per $1 of deferrals in excess of 6% of compensation. It is impo
