Employee compensation packages: Do you know your company’s matching formula?

by | Oct 6, 2021 | Uncategorized | 0 comments

When you are starting a job at a new company – or just looking around – you might notice that employee compensation packages include employer 401(k) matches as a perk. But do you know your current company’s matching formula? And how much does it matter? Because matching formulas can vary, it is important to know exactly what your employee compensation packages entail – even if you aren’t considering looking for a new job. Consider this: Vanguard in 2020 released its annual How America Saves report that showed more than 180 different company matching formulas for plans with an employer match. That’s a lot of variety. Only about 50% of Vanguard employer contribution plans had matching contribution only, and only about 55% of participants were in the plan. Knowing, and maximizing, your company’s matching formula is something that can boost your retirement savings. They are not required legally, but if your employer offers them, you should consider it a major benefit and take advantage. Another thing you should be aware of, if you have a 401(k) and your company has an employer matching program, is the vesting schedule. That’s important information to know if you are considering switching jobs, as you don’t own your employer’s contributions until you are fully vested (which is usually a period of years), meaning, if you leave your job, you lose the matching funds. You also don’t pay income tax on your employer matching funds until you start taking money out of your 401(k), so those contributions grow in a tax-deferred environment. So, how do you maximize your company’s matching formula? • Start contributing to your 401(k) as soon as you can – don’t wait for the match to kick in • Always save enough in your 401(k) to get the full match offered by your employer • Make sure you enroll in automatic payroll deductions, so your money is directly deposited in your 401(k) • Don’t touch your 401(k) until you retire – even if the market dips. Remember, you are in this for the long haul! For more small business tips and ideas, follow us on LinkedIn and Facebook! If you have other questions, email us or call 937.308.0758.

When you are starting a job at a new company – or just looking around – you might notice that employee compensation packages include employer 401(k) matches as a perk. But do you know your current company’s matching formula?

And how much does it matter? Because matching formulas can vary, it is important to know exactly what your employee compensation packages entail – even if you aren’t considering looking for a new job.

Consider this: Vanguard in 2020 released its annual How America Saves report that showed more than 180 different company matching formulas for plans with an employer match. That’s a lot of variety.

Only about 50% of Vanguard employer contribution plans had matching contribution only, and only about 55% of participants were in the plan.

Knowing, and maximizing, your company’s matching formula is something that can boost your retirement savings. They are not required legally, but if your employer offers them, you should consider it a major benefit and take advantage.

Another thing you should be aware of, if you have a 401(k) and your company has an employer matching program, is the vesting schedule. That’s important information to know if you are considering switching jobs, as you don’t own your employer’s contributions until you are fully vested (which is usually a period of years), meaning, if you leave your job, you lose the matching funds.

You also don’t pay income tax on your employer matching funds until you start taking money out of your 401(k), so those contributions grow in a tax-deferred environment.

So, how do you maximize your company’s matching formula?

  • Start contributing to your 401(k) as soon as you can – don’t wait for the match to kick in
  • Always save enough in your 401(k) to get the full match offered by your employer
  • Make sure you enroll in automatic payroll deductions, so your money is directly deposited in your 401(k)
  • Don’t touch your 401(k) until you retire – even if the market dips. Remember, you are in this for the long haul!

For more small business tips and ideas, follow us on LinkedIn and Facebook!

If you have other questions,email us or call 937.308.0758.

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