Contributions may benefit the company in various ways: as an employee benefit to attract and retain employees, as a business tax deduction, or as a safe harbor contribution to automatically pass certain annual testing of the plan required by the IRS and Department of Labor or to fulfill the plan's top-heavy provisions.
Through a corporate matching gift program, a company can double or even triple an employee's contribution toward a charity.
According to the Profit Sharing/401k Council of America, an industry trade group, about 78% of 401(k) plans include some kind of employer match for employee contributions.
Usually, employers will specify a vesting period, which is the minimum amount of time an employee must work to claim the employer-matched contributions.
Under federal law, an employer can take back all or part of the matching money they put into an employee's account if the worker fails to stay on the job for the vesting period.
Under this act, the employees are not taxed on the portion of income they agree to receive as deferred compensation rather than direct cash payment.
[citation needed] The employer matching program and the tax deduction are great advantages to a 401(k) plan; these two alone keep many employees invested.
[citation needed] Economically 401(k) plans are good because it incentivizes Americans to invest in anything they want and build their wealth with certain tax breaks.