The Right 401(k) Plan Can Attract and Keep Valuable Employees
Business owners work hard to build their businesses, but they need valued staff to help take their business to the next level. A key consideration for employees is the 401(k) retirement plan benefits package.
Key concerns or questions prospective employees may ask about the 401(k) plan:
- When am I eligible?
- Is there a company match?
- Is there a profit-sharing component?
- What types of investments do you offer?
Through advanced plan design, you can identify the optimal plan implementation for your company—one which allows you to give your valued employees the opportunity to save for a brighter retirement—and keep
the plan compliant with ERISA and testing requirements.
When it comes to participants, the following considerations should be addressed:
- 1. Eligibility
Should the employer allow employees to enter the 401(k) plan immediately upon hire or should they be required to wait up to one year?
The answer will depend on several factors, including the use of the 401(k) plan as a tool to attract valuable employees, employee turnover and the effect the eligibility period has on passing the nondiscrimination tests.
2. Additional Employer Contributions
A profit sharing feature can be added to allow for additional employer 401(k) contributions.
The profit sharing formula requires separate design; it can be, for example, "non-integrated," "integrated" or "age-weighted," depending upon how the employer desires to allocate such contributions.
What is your vesting preference, and how will it impact testing? Employers
may elect to have participants become fully vested immediately in profit sharing
and/or matching contributions, or a vesting schedule may be selected.
4. Choice of Investments
The employer must decide whether 401(k) plan participants should have "self-directed" accounts or pooled investments directed by the employer.
The fiduciary concerns of the employer and the investment wishes of the participants are key factors when making this decision.
5. Availability of Loans and Hardship Withdrawals
Employers may choose to permit
participants to access their accounts through loans or withdrawals, prior to termination
of employment. However, certain considerations must be weighed when deciding whether
to allow this, including the administrative difficulties with making these options
available and the financial needs of the plan participants.
The right plan design and document will help you develop an optimal plan for you and your valued employees.
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