Is the matching that some employers offer for contributions to retirement accounts a form of riba?
I got this question multiple times and rather than just answer for the people that asked I figured I’d post the answer on my blog so here it is:
In the United States, employers commonly match contributions their employees make to their retirement accounts up to a certain percentage.
So let’s say you contribute 5% of your salary to your retirement account.
Your employer may have a program where they match the first 3% of whatever you contribute to your retirement account.
Which means, in total, you will contribute 5% + 3% (from your employer) = 8% to your retirement account annually.
The question is: Is this 3% extra on what you contributed a form of riba?
I’ll assume you have watched my videos on defining Riba when answering.
In the case of matching contributions, what is really happening?
Is there a direct loan of money? No.
Is there an indirect loan of money? No.
Is there an indirect loan disguised as a sale of an item? No.
Is there an indirect loan disguised as the barter of two items? No.
We could basically stop here, but perhaps what is meant by Riba isn’t specific to lending and borrowing but rather refers to the broader meaning of Riba which is any type of unlawful gain.
Well, what is the purpose of this added contribution from the employer? In our example, the 3%?
Clearly, the motive of the employer is to make the employee happier.
Why does the employer want to make their employees happy? So they can retain and attract good employees.
So this additional contribution to your retirement account is a benefit or perk that your employer is offering in order to make itself a more attractive place to work.
Accordingly, it has the same purpose as the athletic facility that your employer grants you free access to or the cafeteria that you get discounted prices at or any other perk that an employer chooses to offer its employees in order to make itself a more attractive place to work and attract and retain better quality employees.
Just as with the athletic facility and cafeteria, the matching perk is only useful to people who take advantage of it, something I highly advise all my readers to take full advantage of.
If we agree that the gym membership and added options in the cafeteria are not unlawful gain for employees, we should also agree that matching your retirement contributions is not unlawful gain either.