Employer 401k match and plan features

By: Kyle Hurley, CFP – Private Wealth Advisor with Munroe Morrow Wealth Management

 

Two people can earn the exact same salary, invest in similar investments, and retire with dramatically different amounts of money.One reason? Their employer’s 401(k) plan.

We talk a lot about how much you should contribute to a 401(k), how to invest the money inside the account, and the importance of taking advantage of an employer match. But there’s another factor that doesn’t get nearly as much attention: Some 401(k) plans are significantly better than others.

Over the course of a career, the difference between an average 401(k) plan and an exceptional one can potentially add up to hundreds of thousands of dollars…or more.

 

Start With the Employer Match

The employer match is usually the first benefit people look for. According to Vanguard, the average promised employer matching contribution is roughly 4.7% of pay, although plan formulas vary considerably.

In practice, we commonly see employers matching somewhere around 3% to 4% of an employee’s salary. Some companies, however, are considerably more generous.

For example, Southwest Airlines has offered a match of up to 9.3% for eligible employees, while Boeing has offered a match of up to 10% for certain employees.

The takeaway is simple: If you’re not contributing enough to receive your full available employer match, you are leaving part of your compensation on the table.

Some Employers Contribute Even If You Don’t

A match isn’t the only way an employer can contribute to your retirement.

Some plans offer what’s called a non-elective contribution. Unlike a traditional match, this contribution doesn’t necessarily depend on how much you contribute yourself.

For example, imagine you earn $150,000 per year and your employer provides a 3% non-elective contribution.

Even if you contribute nothing yourself, your employer could deposit:
$4,500 per year into your 401(k).

Then There’s Profit Sharing

Some companies take their retirement benefits another step further by offering profit-sharing contributions.

Unlike a traditional employer match, profit sharing is generally discretionary. The amount can change from year to year, and an employer may not be required to contribute at all.

However, when offered it can be substantial.

Suppose you earn $150,000 and your employer makes a profit-sharing contribution equal to 10% of your salary.
That’s another $15,000 deposited into your retirement account for the year.

Employer contributions may also be subject to a vesting schedule, meaning you may need to remain with the company for a certain period of time before you own 100% of those contributions. That’s an important detail to understand before changing jobs, particularly if you’re close to reaching another vesting milestone.

What a Strong 401(k) Plan Can Look Like

Let’s put the pieces together using 2026 contribution limits.
Suppose you earn $150,000 and contribute enough to reach the 2026 employee contribution limit:

  • Your contribution: $24,500
  • Company match: $4,500
  • Profit sharing: $15,000
  • Total invested for the year: $44,000

Now imagine that happening repeatedly throughout your career.

Combine your own savings with employer contributions and decades of potential market growth, and you begin to see why the quality of an employer’s retirement plan can have such a significant impact on someone’s long-term financial picture.

Your Plan May Allow You to Save Even More

For 2026, the total amount that can generally be contributed to a defined-contribution plan from all sources (including employee deferrals and employer contributions) is $72,000 for someone below the applicable catch-up contribution age.

Some plans allow employees to make after-tax 401(k) contributions beyond the standard employee deferral limit. If the plan also allows those contributions to be converted to Roth dollars, it can create an opportunity commonly referred to as the Mega Backdoor Roth strategy.

For high earners who have already maximized their standard 401(k) contributions, this can potentially allow significantly more money to move into Roth accounts. Not every employer plan supports after-tax contributions or Roth conversions, so you’ll need to review your specific plan documents to determine what’s available.

Your Student Loan Payments May Even Qualify for a Match

Another relatively new development involves employees who are balancing retirement savings with student loan payments.

Under current law, employers can choose to treat certain qualified student loan payments as though they were employee retirement contributions for purposes of calculating a matching contribution.

In other words, an employee who is prioritizing student loan repayment may still be able to receive an employer contribution to a retirement account.

Companies including Boeing, Verizon, Chipotle, Comcast, and Walgreens have offered versions of student loan-related retirement benefits.

 

Don’t Forget About Fees

A generous employer contribution doesn’t automatically make a 401(k) plan great. Investment options and fees matter, too.

Some plans offer a strong lineup of low-cost investment choices. Others may include higher-cost mutual funds, administrative expenses, or other fees that are deducted directly from participants’ accounts.

Even relatively small differences in annual fees can compound over a long investing period.

It’s worth asking: Do you know what you’re paying inside your 401(k)? Many investors don’t.

 

Spend 15 Minutes Understanding Your Plan

One of the reasons we like 401(k) plans is their simplicity.4

Contributions happen automatically through payroll. You invest before the money ever reaches your checking account, and over time, you learn to live on what remains.

But simply contributing to a 401(k) isn’t enough. Understanding how your specific plan works can be just as important.

Take 15 minutes to review your employer’s retirement benefits and look for:

  • Your employer’s matching formula
  • Non-elective employer contributions
  • Profit-sharing contributions
  • Vesting requirements
  • After-tax contribution options
  • In-plan Roth conversions
  • Student loan matching benefits
  • Investment choices and plan fees

You may discover that your employer is willing to contribute significantly more toward your retirement than you realize.

If terms like non-elective contribution, profit sharing, vesting, and after-tax Roth conversion sound like a foreign language, you don’t have to sort through them alone. A financial advisor can help you understand the benefits available through your employer and determine how they fit into your broader retirement strategy.

 

 

This material is for informational and educational purposes only and should not be construed as individualized investment, tax or legal advice. Retirement plan provisions vary by employer. Consult your plan documents and appropriate financial and tax professionals regarding your individual circumstances.