401(K) Employer Match Question
I had a quick question about 401(k)'s, particularly in regards to employer contributions.
For 2020, the IRS limitation on employee contributions to a standard 401(k) plan is set at $19,500. The employer match is capped such that the combination of employee + employer contribution cannot exceed $57,000. Typically as a perk, companies will fund a safe harbor provision (say 2-3%) and provide a match of 50% of employee 401(k) contributions, up to a maximum percentage (let's say 6% of eligible annual salary (which is base salary here)).
I was curious why more employers don't offer the full $37,500 of potential pre-tax contributions to their employees? I understand that there exists an IRS rule that requires nondiscriminatory matching across all types of employees -- from "rank-and-file" to senior management -- but at a small private equity or hedge fund, could one make the case to move towards a model where employers max. out this contribution? Perhaps restructuring annual compensation for employees such that the annual bonus' cash compensation component would be reduced by $37,500 (assuming there is no current employer matching program in place). This would result in after-tax annual savings for the employee of $13,125 (35% tax rate).
Maybe I'm missing something here -- thoughts?