What is a discretionary employer match in a 401(k) plan?

A discretionary employer match is an optional contribution an employer can make to match employee 401(k) contributions. Unlike fixed matches, discretionary matches are not required and can change from year to year. Employers can decide annually whether to provide a match, adjust the matching formula, or withhold contributions based on the company’s financial position or business goals.

Because discretionary matches are not guaranteed, they must undergo non-discrimination testing each year. This helps ensure the match does not disproportionately benefit highly compensated employees over non-highly compensated employees. Employers considering a discretionary match should plan carefully to meet compliance requirements, while maintaining flexibility in their retirement benefits strategy.