A 401(k) employer match is money your company chooses to contribute to employee 401(k) accounts, based on the percentage an employee defers, up to a set threshold. While not required for most plans, employer contributions can boost engagement, improve your plan participation rate, and in some cases increase your plan's likelihood of passing annual nondiscrimination testing. Gusto Retirement supports two primary match options: a safe harbor match or a discretionary match.
A safe harbor plan helps make sure all eligible employees have a fair opportunity to benefit from the plan. The employer match must follow a specific formula, though there are a few variations.
You can learn more about traditional and QACA safe harbor plans.
Traditional safe harbor
QACA safe harbor
Basic match
100% of the first 3% of employee deferrals, plus 50% from 3 – 5% of employee deferrals. For a maximum of 4% match.
100% up to 1% of employee deferrals, plus 50% from 2 – 6% of deferrals. For a maximum of 3.5% match.
Enhanced match
At least as much as the traditional basic match at each tier of the match formula, but cannot provide matching for deferrals over 6%.
At least as much as the QACA basic match at each tier of the match formula, but cannot provide matching for deferrals over 6%.
One major benefit of safe harbor is that the plan will automatically be deemed to pass certain annual nondiscrimination testing.
Important: Any changes or suspensions made during the plan year to the safe harbor match will result in a forfeiture of safe harbor status. The plan must continuously offer the same safe harbor match contribution with every payroll cycle from Jan. 1 through Dec. 31 to remain eligible.
For Gusto Retirement plans, safe harbor match contributions can only be added with a Jan. 1 effective date. Notice must go to employees at least 30 days in advance. To meet the 30-day window, the plan document must be updated by Nov. 30 of the year before the effective date.
To add a safe harbor matching provision, reach out to our Retirement Sponsor Support team.
A discretionary matching contribution lets you decide which percentage of employee deferrals to match and gives you the flexibility to adjust matching amounts as business needs change.
For example, if you offer a 25% match of employee deferrals up to 5% of compensation, you could change or suspend this discretionary match going forward at any time.
Plans with discretionary matching contributions are not exempt from nondiscrimination testing. ADP and ACP testing will apply, and the plan may be subject to Top-Heavy minimum contributions
Vesting schedules can apply to discretionary matching contributions, which can help reward long-term employees
Forfeitures of unvested amounts can be used to offset future employer contributions
Plans with a discretionary match are subject to some notice requirements, although the notice is not required to be provided in advance of the matching contribution