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Should you offer a 401k Plan to your Employees?

Posted on Sunday, September 2nd, 2012 by

A strong retirement benefit is a powerful tool for attracting and keeping capable and committed employees. The costs associated with administering such a benefit and the matching contributions to your employees’ accounts could turn into an expensive way to keep your people happy. The government helps defray a significant portion of these expenses and all participants, company owners included, defer taxes on the wages they direct into a defined contribution plan. It’s a good idea to be sure that any retirement plan you set up makes the most of your investment.

Evaluate Your Needs

If you want to offer a way for your employees to contribute to their retirement, there are two options: a SIMPLE (savings incentive match plan for employees) or a full 401(k). Deciding which one to choose depends on how much your company can afford to match, how much you intend to save for yourself, and how likely your employees are to participate.

The SIMPLE Option

For businesses with up to 100 employees, SIMPLE IRAs and the similar SIMPLE 401(k)s are, indeed, fairly simple. You fill out a two-page IRS form, pay a small fee and that’s about it. In most cases, participants (including employers) can put away up to $10,500 in a SIMPLE IRA and $10,500 in a SIMPLE 401(k) in 2008. (In both instances these are pretax dollars.) The company must match at least either 3 percent of the salaries of employees who participate in the plan or 2 percent of the wages of all eligible employees, including those who do not participate — and this employer match is immediately fully vested.

The 401(k) Option A 401(k)

By contrast this option generates a lot of paperwork and costs several thousand dollars per year. But participants can put away up to $15,500 per year (again, these are pretax dollars), provided the company makes a slightly more generous match than the SIMPLE requires. The Rule of Thumb: Generally, a full 401(k) makes sense once a company reaches a payroll of about $500,000 — or, alternatively, when you and your participating employees combined contribute at least $20,000 in salary deferrals and company matching.

Get Professional Advice

A 401(k) is not something you want to attempt on your own. Two kinds of direction are in order: investment advice and plan design and management. If you or someone you know is thinking about offering a 401(k) to their employees stop by our offices and well explore all of your options. S. Brett Anderson Allsure Insurance Agency, LLC [email protected]



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