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There is no legal
requirement for companies to contribute to a 401(k) plan. Many companies do choose to
contribute because it helps boost employee participation in the plan and it's a
competitive advantage for attracting and keeping valuable employees.
Many employers commit to matching a percentage of an employee's contribution. Generally
speaking, the most common match rate is 50 cents on the dollar, up to 6% of an employee's
salary. But when comparing your company's benefits with those of other companies, you
should remember that there are other ways an employer can contribute to a 401(k) plan in
addition to matching contributions. For example, the employer may choose to make a
discretionary "profit sharing" contribution based on company profits. Other
employers may "match" employee contributions in the form of company stock,
instead of cash.
To make a fair comparison, you should also consider all other retirement benefits an
employer offers (such as pension, profit sharing or ESOP) outside the 401(k).
An informative source for comparative 401(k) plan information is the "Annual Survey
of Profit Sharing and 401(k) Plans" published by the Profit Sharing Council of
America (PSCA). PSCA can be reached at (312)-441-8550 or www.psca.org. |
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