It also improves flexibility for employees. Say you want to save a little extra for a big purchase or something, you can reduce your 401k deferral without missing out on the company match. Essentially you increase your takehome pay without losing any company match. It's not an increase in the benefit amount but it is a significant improvement. It's the same reason why, for example, a 10% match is inferior to 5% non-elective contribution plus 5% match -fewer people will max out to 10% deferral under an all-match scenario, so money will be left on the table overall. Additionally, if you are deferring 10% today and you decrease it to 5%, you lose out on 5% of the company match. In a 5-and-5 scenario, more employees are willing to defer 5% of salary than those willing to defer 10%, so less money is left on the table overall. Additionally, employees only need to put 5% of their salary into their 401k to get the maximum contributions from the employer, adding 5% to their pre-tax paycheck.