When Do Employers Contribute to a 401(k)?

Employer contributions to 401(k) plans are a valuable part of employee retirement savings. These benefits help individuals build their nest egg and attract talent. Understanding their forms and conditions is important for maximizing savings.

Types of Employer 401(k) Contributions

Employers contribute to 401(k) accounts in several ways, each with distinct characteristics. One common method is through matching contributions, where an employer adds funds to an employee’s account based on the amount the employee personally contributes. This often follows a formula, such as a dollar-for-dollar match up to a certain percentage of salary, or a partial match. For example, an employer might match 100% of the first 3% of an employee’s salary contributed, then 50% of the next 2%, effectively providing a 4% employer contribution if the employee defers 5%. The specific matching formula and any “match cap” are determined by the employer’s plan.

Profit-sharing is a discretionary contribution not tied to individual employee deferrals. Employers decide annually whether to make these contributions and the amount, often based on company profitability. Profit-sharing contributions can be allocated using various formulas, such as a percentage of each participant’s compensation. These contributions offer employers flexibility, as they can adjust the amount based on business conditions, ranging from zero to 25% of eligible compensation.

Non-elective contributions are made to all eligible employees, even if they do not personally contribute to the plan. These contributions are not dependent on employee deferrals.

Safe harbor contributions help plans meet regulatory requirements, bypassing complex annual nondiscrimination testing. These contributions can take the form of either matching contributions or non-elective contributions. Safe harbor matching contributions generally require a 100% match on the first 3% of compensation deferred and 50% on the next 2%, or an enhanced match that is at least as generous. A safe harbor non-elective contribution means the employer contributes a minimum of 3% of each eligible employee’s annual compensation, regardless of whether the employee contributes. A key feature of safe harbor contributions is that they require 100% immediate vesting.

Employee Eligibility and Vesting Schedules

To qualify for employer 401(k) contributions, employees must meet eligibility criteria established by the plan document. Common requirements include reaching a certain age, such as 21, and completing a defined length of service, like 1,000 hours within a 12-month period. While employers can set more generous terms, they cannot impose stricter requirements than those outlined by federal regulations.

Recent changes in regulations have expanded eligibility for part-time employees. Starting in 2025, if a part-time worker completes at least 500 hours of service per year for two consecutive years, they must be allowed to participate in the plan for elective deferrals. Employers may also require employment on the last day of the plan year or a minimum number of hours to qualify for certain contributions. These conditions determine when an employee can begin receiving employer contributions.

Vesting dictates when an employee gains full ownership of employer contributions. While employees are always 100% vested in their own contributions, employer contributions often follow a vesting schedule, outlining ownership percentages at different employment points.

There are two main types of vesting schedules. Cliff vesting means an employee becomes 100% vested after a specific period, such as three years, but owns nothing before that time. Graded vesting allows employees to gain increasing percentages of ownership over time, such as 20% after two years, 40% after three years, and so on, until they are 100% vested, typically within six years. Some contributions, particularly safe harbor contributions, are immediately 100% vested, providing instant ownership to the employee. If an employee leaves employment before being fully vested, any unvested portion of the employer contributions may be forfeited.

Employer Contribution Timelines

The timing of employer 401(k) contributions and regulatory deadlines are specific for compliance. For employee deferrals and matching contributions, employers must deposit funds as soon as administratively feasible after withholding. The Department of Labor (DOL) mandates deposits no later than the 15th business day of the month following withholding.

For smaller plans, those with fewer than 100 participants, a safe harbor rule allows deposits within seven business days of withholding to be considered timely.

In contrast, the timelines for depositing profit-sharing and non-elective contributions are annual. Employers commonly deposit these contributions by the due date of their federal tax return for the tax year in which the contribution is made, including any extensions. For example, a business operating on a calendar year might have until March 15th for S corporations and partnerships, or April 15th for C corporations, with extensions often pushing the deadline to September 15th. This allows employers flexibility to assess their financial performance before committing to a discretionary contribution.

Safe harbor contributions, whether matching or non-elective, have their own specific timing requirements to maintain their safe harbor status. While some safe harbor matching contributions may be made on a per-payroll basis, others might be deposited at year-end. The plan document will specify the chosen method. Non-elective safe harbor contributions, which are a percentage of pay, are generally required to be contributed by the end of the plan year. The plan’s official document details the specific timing and rules governing all types of contributions. Adhering to these timelines and federal regulations is essential for proper plan operation.