Is a company allowed to give employees an option for a bonus to be paid out as a 401k match or cash?
"This has to do with the type of plan offered: is it a 401(k) plan or a profit-sharing plan, or both? If it's 401(k) I believe the IRS will see this distribution as elective and count towards the employee's annual elective contribution limit. If it's profit sharing the distribution would be counted toward the employer's portion of the limit. However -- profit sharing plans have a formula that's standard across the board and applied to all employees. i.e. 3% of company profits given equally to all employees. One of the benefits of the profit sharing plans is also that you can use a vesting schedule. I'd consult your accountant to see how this specifically impacts your business - but in the case you describe this sounds like an elective deferral choice by an employee and I don't see how (or why) you'd make this decision for them. Give them the bonus and let them choose how it's paid out. Edit: in re-reading your question it actually sounds like you're wanting to setup a profit sharing type situation - but again, heed what I said above. You decide the amount of ""profit"" - but you also have to set an equation that applies across the board. There is more complication to it than this brief explanation and I'd consult your accountant to see how it applies in your situation." I have worked for companies that have done this. One did have a match and the other did not. When they figured their profit at the end of the year a portion was given to the employees as a 401K deposit.  retirement-topics-401k-and-profit-sharing-plan-contribution-limits Total annual contributions (annual additions) to all of your accounts   in plans maintained by one employer (and any related employer) are   limited. The limit applies to the total of: elective deferrals employer matching contributions employer nonelective contributions allocations of forfeitures The annual additions paid to a participant’s account cannot exceed the   lesser of: 100% of the participant's compensation, or $54,000 ($60,000 including catch-up contributions) for 2017;  $53,000   ($59,000 including catch-up contributions) for 2016. So as long as everything stays below that $54,000 limit you are good. In one case the decision was made by the company for the employee, the other company gave us the option of bonus check or 401K. I heard that most of the employees wanted the money in the 401K.
I certainly do not agree and you are making some sweeping statements without backing them up. What I am saying is that a company cannot make a promise of credit to an employee without having something to back that up. If you don't have that then you cannot offer pensions or other futures that you cannot ensure are going to be properly funded. No one forces a company to offer pensions in this day and age (there are exceptions of course) so they do not need to offer it at all.   Things like pensions are often used as incentives that can be provided in lieu of cash payments to the employee. If we are going to make cash like exchanges of value then that value should be just as guaranteed as it is when the company promises to pay back a loan.   In short you should not be able to hire employees on a financial promise you cannot keep in good faith. If for some reason you cannot keep that promise, just like with standard credit it should hurt you.   Or you know, as a company don't make BS promises and just pay people what they are worth. "I agree with the other answers that it is a benefit, but wanted to add another explanation for this: Also, why a company would prefer matching someone's contributions (and   given him or her additional free money) instead of just offering a   simple raise? In addition to a match being a benefit that is part of your total compensation, 401ks have special rules for Highly Compensated Employees.  If the lower paid employees do not contribute, the ""Highly Compensated Employees"" do not get to take full advantage of the 401k.   By offering a match, more lower paid employees will take advantage of a 401k program allowing more Highly Compensated Employees to also take advantage of the program." "As the comments above have been trying to get across, the prospective employer is offering to pay you for the bonus/unvested compensation that you would be losing by jumping ship right now to go work for them.  They are not offering to buy any securities that you already hold, regardless of whether they're profitable or unprofitable. Example 1. You participate in your current company's 401(k), and your company matches your contributions at 50%.  However, the matching funds are not yours immediately; they vest in 20%/year increments until you have been at the company for 5 years.  Let's say you've been there for 3 years and have contributed $50K to the plan.  Your company has matched you at $25K, but only 60% of that ($15K) has vested.  If you leave right now for the new employer, you're leaving $10K behind.  So the new employer might offer to ""buy out"" (i.e. pay you) that $10K to help encourage you to switch now.  You might then counter their offer by pointing out that if you stay where you are that $10K is coming to you tax-deferred, whereas their $10K signing bonus would be taxed.  So you ask for $15K instead. Example 2. You work for a Wall Street investment bank.  Each December you receive a performance bonus.  Since you began working there, your three yearly bonuses have been (in chronological order) $500K, $750K, and $1M.  It's June, so you've worked halfway towards your next bonus.  You have a lot of incentive to NOT leave your current employer.  A competing employer may offer to ""buy you out"" of your anticipated bonus by giving you a $1.25M signing bonus (since you'd almost certainly not be eligible for a performance bonus during your first year there).  You might negotiate with them and say ""I'm on track for $2M this year"", and then they would figure out if you're really worth that much to them. So you can see this all has to do with the prospective employer trying to compensate you for any income you're already counting on receiving from your current employer.  By jumping ship now you would be foregoing that guaranteed/expected income, so the competitor wants to remove that anchor that might be holding you back from making the move. Stocks/options that you already own are irrelevant to the prospective employer.  Since you wouldn't be giving those up by changing jobs, there's no reason for them to factor into the equation." Which is actually not usually the case. The bonus is typically in shares which they can only cash in after so many years, to try and align the C-suite's interest with long term plans for the company.   What most screws things over is being in the share market, when management makes itself slave to the vagarities of the intraday price. There are a very few number if companies that have realized this and gone back to annual rather than quarterly reporting. What you want is a cashless transaction. It's part of the normal process. My employer gives me 1000 options at $1, I never need to come up with the money, the shares are bought and sold in one set of transactions, and if the stock is worth $10, I see $9000 less tax withholding, hit the account. No need for me to come up with that $1000. I don't believe there exists a tax-advantage for paying employees a bonus instead of increased salary. It's all expense to the employer, it's all income to you, and it's taxed the same (bonus checks might have more withheld, but your end of year tax burden doesn't change). It does benefit your employer to delay a significant portion of your pay until the end of the year, delaying payment provides buffer in case of delays in getting paid by the client. Your employer could even put the extra money to work earning more money over the year.  It would depend on your contract, but are you due your bonus if you were to leave your job before year-end? If not, that's a great reason to delay payment, because it makes you less likely to leave mid-year, and should you not work out they can keep the difference. Yes. Not doing so would be like turning down a raise. The best advice in almost every situation is to at least contribute up to the amount that the company will match so you get the full benefit. One thing to clarify that you might not be understanding. The vesting period is only for the money the company matches, not your own investment. Even if you leave the company before the account is vested or fully vested, you can transfer to a 401k at your new employer, or roll over into an IRA, or take as taxable income (and pay a penalty if it is an early withdrawal), all your contributions together with any investment gains or losses that have occurred. Ditto whatever part of your employer match that has vested by the time you leave. Often, the employer matching contributions are invested in the  same funds in the same proportions that you have chosen for your own contributions and thus will have incurred the same gains or losses as your own contributions, but  what you are entitled to take with you is the part that has vested. Also, you mention that it is unlikely that you will stay the entire 5 years. However, if you plan to at least stay a couple of years it makes sense to get the 20%, 40%, etc. of the match that you vest during your stay. Again, it's free money. Most plans yes, but it depends on your specific plan's provisions. You want to get a Summary Plan Description for your specific plan. Speak with HR (assuming you have one, or whoever is in charge at your company) and request a Summary Plan Description (they are legally required to provide you with one if you ask, although there may be a small cost to you for printing). It will tell you in there when distributions may be made following severance of employment as it pertains to your specific plan. An excerpt from the doc submitted to the IRS for plan approval -  option g would be the choice that's available, and participant should watch out for.  This is the response (a small excerpt, the full doc ran 2 pages and had private information) -  It confirms the full document (the plan itself) was approved. "Yes, this is restricted by law.  In plain language, you can find it on the IRS website (under the heading ""When Can a Retirement Plan Distribute Benefits?""): 401(k), profit-sharing, and stock bonus plans Employee elective deferrals (and earnings, except in a hardship distribution) -- the plan may permit a distribution when you: •terminate employment (by death, disability, retirement or other severance from employment); •reach age 59½; or •suffer a hardship. Employer profit-sharing or matching contributions -- the plan may permit a distribution of your vested accrued benefit when you: •terminate employment (by death, disability, retirement or other severance from employment); •reach the age specified in the plan (any age); or •suffer a hardship or experience another event specified in the plan. Form of benefit - the plan may pay benefits in a single lump-sum payment as well as offer other options, including payments over a set period of time (such as 5 or 10 years) or a purchased annuity with monthly lifetime payments.  Source: https://www.irs.gov/retirement-plans/plan-participant-employee/when-can-a-retirement-plan-distribute-benefits If you want to actually see it in the law, check out 26 USC 401(k)(2)(B)(i), which lists the circumstances under which a distribution can be made.  You can get the full text, for example, here: https://www.law.cornell.edu/uscode/text/26/401 I'm not sure what to say about the practice of the company that you mentioned in your question.  Maybe the law was different then?" Simply put, that's not allowed.   Outside a retirement fund, they simply do not provide a mechanism to pay that expense ratio separately.  Ergo, any effort to pay that expense ratio would be classified as a new/additional purchase of the fund. You now must deal with  Inside a retirement fund, paying the expense ratio of the fund with cash would be treated as an additional contribution, which may then violate contribution rules (such as going over your contribution limit, or contributing past age 70-1/2). Your situation may be different if your employer contracts with a different company to manage these benefits (or manages them themselves), but I'll give you my experience. My employer contracts with WageWorks. I log on to the WageWorks site, select commuter options from a predefined list, e.g. public transit passes, gas debit cards, parking passes, etc. and the cost of my choices is automatically deducted from my paycheck each month, up to the limit. WageWorks either sends me whatever I purchased in the mail or reloads the card automatically, and the process continues each month. In my case, I couldn't use this to purchase a ticket for someone else, but I could choose the subway option for myself and let another person use it. "Almost all companies in the US have changed from formal pension programs to 401k plans, and most companies that still have pension programs don't allow new employees to  enroll in the new program; only the previous participants who are vested in the pension plan will get benefits while new employees get enrolled in the 401k plan. If this is the case with  your prospective employer, then demanding that you be allowed to enroll in the pension plan is likely to be futile; in fact, the likely response may well be ""Here is our offer. Take it or leave it"" or ""We are withdrawing  the offer we made"" especially if you are in a field where there are plenty of other people who could do the job instead of you. So be sure that you understand what your worth is to the company and how much leverage you have before starting to make counter-offers. With regard to money that you might have vested in your current employer's pension plan, your options are to leave it there until you retire and start getting a pension (generally not advisable in these parlous times when the company might not even exist by then), roll it over into an IRA or into your new employer's 401k plan. This last is the only matter that concerns your prospective employer and where you might need to ask; the new employer's 401k plan might not be structured to accept rollovers. If the money in your current employer's retirement plan is in a pension plan, what is paid out for rolling over might be different (and smaller) than what has been credited to you thus far. For example, my (State Government) pension plan credited 8% interest per annum on the amounts I contributed but this was fake money because had I resigned and withdrawn the pension contributions (for the purpose of rolling over into an IRA or even just taking it as cash), I would have received only my contributions plus only 4.5% interest per annum. The 8% interest credited is available only for the purpose of the purchase of an immediate annuity upon retirement; it is not something that is portable to a new plan, and if I want a lump-sum payout upon retirement instead of a pension in the form of an annuity, it would be the 4.5% rate again..." I use the self-directed option for the 457b plan at my job, which basically allows me to invest in any mutual fund or ETF. We get Schwab as a broker, so the commissions are reasonable. Personally, I think it's great, because some of the funds offered by the core plan are limited. Generally, the trustees of your plan are going to limit your investment options, as participants generally make poor investment choices (even within the limited options available in a 401k) and may sue the employer after losing their savings. If I was a decision-maker in this area, there is no way I would ever sign off to allowing employees to mess around with options. No, you cannot. 401k must not be discriminatory, i.e.: you cannot have different matching for different employees. It's legal. In fact, they are required to do this, assuming you are in fact a HCE (highly compensated employee) to avoid getting in trouble with the IRS. I'm guessing they don't provide documentation for the same reason they don't explain to you explicitly what the income thresholds are for social security taxes, etc - that's a job for your personal accountant. Here's the definition of a HCE:  An individual who: Owned more than 5% of the interest in the business at any time during   the year or the preceding year, regardless of how much compensation   that person earned or received, or For the preceding year, received   compensation from the business of more than $115,000 (if the preceding   year is 2014; $120,000 if the preceding year is 2015, 2016 or 2017),   and, if the employer so chooses, was in the top 20% of employees when   ranked by compensation. There are rules the restrict distributions from plans like 401ks. For example, treasury reg 1.401a(4)-5(b)(3) says that a plan cannot make a distribution to a HCE if that payment reduces the asset value of the plan to below 110% of the value of the plan's current liabilities. So, after taking account all distributions to be made to HCEs and the asset value of the plan, everyone likely gets proportionally reduced so that they don't run afoul of this rule. There are workarounds for this. But, these are options that the plan administrators may take, not you. I suppose if you were still employed there and at a high enough level, a company accountant would have discussed these options with you. Note, there's a chance there's some other limitation on HCEs that I'm missing which applies to your specific situation. Your best bet, to understand, is simply ask. Your money is still there, you just can't get it all this year.