what is a nonelective contribution 
nonelective contributions are funds employers direct toward their eligible workers employer sponsored retirement plans whether or not the employees make their own contributions just as with matching contributions nonelective contributions are not deducted from employees salaries however the amount of a matching contribution depends on how much money the employee contributes that s not the case with a nonelective contribution with a nonelective contribution the employer contributes to the plan no matter what the employee contributes understanding nonelective contributionsnonelective contributions can vary for example a company might contribute the equivalent of 3 of each employee s salary toward their employer sponsored retirement plan if an employee earns 50 000 per year for example the employer would be contributing 1 500 per year no matter what the employee contributes employers are free to change the contribution rates as they see fit for their organizations nonelective contributions cannot exceed the annual contribution limits set by the internal revenue service irs the total annual amount that can be contributed to a defined contribution plan such as a 401 k in 2024 is 69 000 if you re under 50 years old if you re 50 or older you can contribute an additional 7 500 in catch up contributions bringing the total to 76 500 for 2024 1advantages of nonelective contributionsnonelective contributions come with advantages for the employer they are tax deductible and they can encourage more employees to participate in the company s retirement plan the decision to offer fully vested nonelective contributions can also provide retirement plans with safe harbor protection which exempts plans from government mandated nondiscrimination testing the irs administers these tests to make sure plans are designed to benefit all employees instead of favoring highly compensated ones making nonelective contributions can help employers meet this goal while also remaining compliant with government rules to be granted safe harbor by the irs employers nonelective contributions must be at least 3 before the end of the plan year a company can decide to elect safe harbor provisions like making nonelective contributions for the following year they can also decide to elect safe harbor provisions for the year generally 30 days before the end of the plan year employers make nonelective contributions to employees accounts whether or not employees make contributions which benefits the employees the employees don t have to do anything to receive this benefit disadvantages of nonelective contributionsoffering nonelective contributions could come with additional administrative costs and it may not be feasible for all employers making nonelective contributions also means flowing money into default funds for employees who don t manually enroll in a plan and select a fund or make contributions as fiduciary plan sponsors employers would need to take due diligence in selecting these funds to make this simpler the pension protection act of 2006 outlined its qualified default investment alternatives qdias and how employers can enroll workers in these funds while gaining safe harbor protection qdias are defined as target date funds tdfs or lifecycle funds balanced funds and professionally managed accounts however a tdf should not be viewed as a definitive option that would meet the needs of all employees employers still need to take a thorough look at their workforce to determine appropriate plan menu funds and qdias to remain compliant with government regulations and to help employees secure a comfortable retirement with a nonelective contribution an employee may receive less money from an employer compared to a matching contribution which varies but can be 5 or more 