The Benefits of 401(k)
401(k) Plans have become one of the best known and sought after methods of saving for retirement for employees. Employers have realized the benefits of 401(k) by using this flexible retirement plan program as an alternative to providing additional compensation to employees in a competitive marketplace.
The Benefit To The Employer
- Employer 401(k) contributions and administrative expenses associated with the plan are tax deductible to the employer.
- Employer contributions made to the plan are discretionary (determined by the employer) and may be changed at any time.
- The employer may set up eligibility requirements that an employee must meet to receive employer contributions. This feature promotes employee longevity.
- 401(k) plans improve morale and employee satisfaction ultimately enhancing employee productivity.
- 401(k) plans can be designed to solve competitive pressures for attracting employees created by competing employers.
401(k) plans can help to reduce the cost of employee turnover. Statistics show that the cost of replacement of an employee is high. The benefits of reducing turnover can exceed the administrative expenses associated with providing a 401(k) retirement plan. A 401(k) can reduce turnover in many ways:
- Providing a benefit the employer can use to attract and retain qualified employees.
- Employee 401(k) contributions are made on a pre-tax basis (before State and Federal Income Tax) and are 100% owned by the employee.
- Employer contributions to a 401(k) program can be vested (ownership schedule) based on an employees years of service with the employer. Vesting schedules can be designed to promote longevity with the employer.
- If an employee terminates his employment before he/she is 100% vested, the non-vested contributions can be used by the employer to offset future employer contributions to the plan.
The Benefit To The Employees
- Allows the employee to contribute on a pre-tax basis and reduce their Federal and State Income Tax.
- Matching contributions provide incentives for individuals to save on a pre-tax basis.
- Allows the employee to establish a retirement account to create security for the future.
- Flexible plan design allows the employee to control:
- Employee election to defer
- How much to defer
- Investment decisions on their retirement account
- Withdrawals for financial emergency
- Creates goodwill between the employee and the employer.
- Creates a vehicle for a new employee to roll dollars from a previous employer's plan. This feature can create a relationship between the new employee and employer.
- Allows the employees to develop investment skills that will be needed in the future.
Clearly, 401(k) retirement plans provide a "win/win" situation for employers and employees. This is one benefit you really don't want to miss out on! Call us at (262) 207-1999 to learn more about the benefits of 401(k).
