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When you figured out how much you owed the IRS this year, did it make you wish your employer would set up a 401(k) Plan so you could sock away some of your income, tax-deferred? Well, stop waiting and wondering and just start lobbying! That's the advice from more and more financial planners who say employees are taking the initiative to get their employers to offer 401(k) plans. All it takes is a few employees coming forward and stating that a 401(k) plan is something they really want as part of their employee benefit package. For example, a man that worked at a 15 employee chemistry lab and consulting firm did just that. He stated that he had been thinking about his own retirement and began talking with other employees. Since the company did not have any type of a retirement plan in place, he approached the owners with the idea of starting a 401(k) plan. Today, six years later, he is vice president of the company and a trustee of the company's 401(k) plan. By taking the initiative himself, he assisted his bosses in looking into an important issue - employee retirement savings. The demand for 401(k) plans is rising due to several reasons; baby boomers are discovering the tax-deferred benefits, employees that utilize a 401(k) plan move to a company that does not offer one, and the upward trends of the stock market which is traditionally a 401(k) investment option. Also, a 401(k) plan allows an employer to make matching contributions to the plan. Employer contributions are tax deductible, just as if they had been paid in salary, but they are not subject to payroll taxes such as Social Security, Medicare, and workers' compensation. For the employers who choose not to contribute, the plan still offers a very effective retirement savings plan at little cost. 401(k) plans permit a diverse variety of investment options and more can be added. In addition, funds can be managed be either the employees themselves or by professionals. Getting a 401(k) plan started takes careful consideration. From beginning to end, it can take as little as a week. Once the owners decide to start a 401(k) plan, there are several issues that must be considered. Eligibility restrictions of the employees, plan options such as loans, and what investment vehicles to use are all factors in designing a successful 401(k) plan. Also, adherence to IRS regulations is extremely important to assure the plan qualifies for the special tax treatment. Another serious decision is who will administer the plan? The plan administer is responsible for preparing the paperwork, reports to employees and the IRS, and compliance with IRS tax and labor laws. Once these decision are made, the plan administrator will meet with the employees in order to discuss how the plan operates and explain the investment options. Employees then must make the choice of participating. If the employer has decided to make a matching contribution to the plan, it is stressed in the meeting that this is an immediate return on their money. If the employee chooses not to participate, they are not eligible to receive the contribution made by the employer. In essence, they are missing out on free money! If your employer is offering a 401(k) Retirement Savings plan, you should participate to the maximum you can afford. If your company does not have a plan, talk to your Human Resource director or Comptroller about starting one. For more information, questions or comments, please contact us today at:
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