Do you know what a company match is? Have you recently heard that term? Are you unclear about what it entails? Are you leaving free money on the table? Continue reading to learn more about what a company match is.
What is a company match?
At some companies, employees have the option to invest in a retirement account. Some of these companies will contribute additional money on top of the employees’ contribution. The employer will match up to a predefined percentage. Therefore, you could be leaving free money on the table if you aren’t aware of company matches!
Each company has its own policy on the amount they will contribute. Additionally, at some companies, there might be a vesting schedule in which you have to work at the company for a specified amount of time before you are able to keep your employers contribution.
Who should be contributing to their retirement fund?
Anybody who works at a company that offers a match for investing in their retirement should be investing. With that being said, some people might not be in a place where they are able to afford to invest in their retirement at this time but this should be a small percentage of people.
How do I know if I’m receiving the full company match?
Each company will have its own policy on how much money they will match and contribute to your retirement account. You’ll want to go to your HR department or documents to find this information. The numbers can often be a bit tricky to understand so it’s important that you make sure it makes sense so that you know you are receiving the maximum amount of match possible.
For example, my company’s match policy is a bit tricky but I’ll provide some numbers that have been changed everso slightly and we can break it down.
For example, let’s say that Company X matches 100% of the first 3% of your annual salary. If your salary was $50,000, you would need to contribute $1,500 and your company would also put in an additional $1,500.
However, let’s say that Company Y matches only matches 50% of the first 3% of your annual salary. If your salary was $50,000, you would still need to contribute the full $1,500 but you would only receive $750 of contribution from your company.
Company X will match 66 2/3% of the first 6% (of their eligible income) employees contribute each pay period.
Each year, there is a maximum amount that you are allowed to contribute to your 401k so be sure to know what that number is for the current year from the IRS.
What is vesting?
In a large number of companies, you might not receive 100% of the companies match immediately if you were to leave the company. In order to incentivize the employees to stay with the company for longer periods of time, companies might have what is known as a vesting schedule. A vesting schedule is defined by your company and it details the amount of time you need to stay with the company before you receive 100% of the company’s match. Vesting schedules can look different from company to company. If you’re lucky, your company won’t have any vesting schedule! This means that from day 1, you’ll receive 100% of the match that the company contributes. I’ll explain a few types of vesting schedules I’ve encountered.
One of the simplest vesting schedules to understand is a simple, “You have to stay at the company X number of years before you receive 100% of the match.” This could be 3 years, 5 years, or any set number that the company chooses.
The second type of vesting schedule I’ve seen is much more of a schedule. For example, the company’s policy might say that you have to remain at the company for 5 years to receive 100% of the match but each year you stay with the company, you’ll receive 20% of that match. So, it might look something like this.
| If you left after year… | You’d get to keep… |
| 1 | 20% |
| 2 | 40% |
| 3 | 60% |
| 4 | 80% |
| 5 | 100% |
This could mean that you need to say at the company for 5 years before you earn a full match. At the 5 year mark, you’d be fully vested and you’d get to keep 100% of the company match.
It all depends on your companies policies and you can look at your HR policies to learn more about their vesting and match policies.
Where do you find this information?
The details regarding your companies match and vesting schedule can usually be found through your employer’s HR/Benefits department. Here you will be able to find what percentage of your paycheck you need to be investing to make sure you are receiving the maximum amount of match from your employer. You’ll also find how many years you may need to stay with the company if you’d like to be fully vested.
Why should you be trying to receive the company match?
If you’re lucky enough to be in the position to be investing in your retirement, this is free money on the table up for grabs. Don’t leave this money on the table. If you are in a position to swing this, you should try to make sure that you are AT LEAST investing enough money to be receiving the full match from your company.
Here are all the key takeaways you’ll want to remember:
- It’s free money on the table.
- You put in money into your retirement account and your company will put additional money into your retirement account to “match” your contributions.
- You don’t get the company match if you aren’t putting money into your retirement account (in most cases).
- Companies will match your contribution up to a certain percentage or dollar amount.
- Each company has their own policy regarding match amounts, vesting schedules, and which accounts they will match your contributions for. Seek your HR department if you are unsure.
- You want to make sure you are putting in at least enough to be receiving the full match from your company.