An employer match is often described as free money, which obscures how it is actually calculated. The rules that govern it are specific, and they determine both the amount and whether it can be kept.
The formula sets what is contributed
A match is expressed as a rate applied to employee contributions up to a share of pay, such as a full match on the first portion and a partial match beyond it.
The employee must contribute for the match to occur, since it is calculated against elective deferrals rather than granted automatically.
Some employers instead make nonelective contributions that do not depend on employee deferrals at all, which is a different structure with different rules.
Vesting decides when the money is yours
Employee contributions are always fully owned by the employee. Employer contributions may be subject to a vesting schedule tied to years of service.
Cliff vesting grants full ownership at a single service milestone, while graded vesting grants ownership in increasing portions over several years.
Leaving before the schedule completes forfeits the unvested portion, which is why the vesting terms matter when comparing job offers.
Limits apply at several levels
Tax rules cap how much an employee may defer in a year, and a separate higher cap applies to the combined total of employee and employer contributions.
Compensation above a specified amount cannot be counted when applying a percentage formula, which limits matches on very high salaries.
These figures are adjusted periodically, so the operative numbers are the ones published for the current plan year.
Payroll timing can cost a match
Many plans calculate the match per pay period rather than annually, so an employee who front-loads contributions and hits the annual cap early may stop receiving matches.
Plans that include a true-up provision reconcile at year end and pay what an annual calculation would have produced.
Whether a plan trues up is stated in its summary plan description, and it is one of the few plan details with a direct arithmetic consequence.
The plan document governs everything
Eligibility waiting periods, automatic enrollment, contribution types and loan or withdrawal provisions are all defined by the plan rather than by general practice.
Employers can change formulas prospectively, and plans are periodically amended as rules change.
Because individual circumstances vary and tax treatment is involved, questions about a specific situation belong with the plan administrator or a qualified professional.