401(k) Plans Basics

Use 401(k) plans basics to retain employees and help them grow into retirement

The way workers save for retirement changed with the introduction of 401(k) retirement plans, which shifted the focus from traditional pension fund retirement plans. The Internal Revenue Service puts limits on the amount an employee can deposit in the plan. While this amount is subject to change by law each year, in 2008, for example, the limit was $15,500. This figure does not include any amount the employer decides to match.

The decision to match 401(k) contributions isn’t a requirement, but it is a factor in attracting and retaining talented employees. If employees feel that a company values them and their financial security, they will be less likely to leave for another job. If offering a 401(k) plan is new to you, learn the basics and remember your company can employ 401(k) administrators in-house or hire a company to manage the plans. Whether you're a new or established company, there are some 401(k) plans basics to consider before you alter or begin a new plan, such as:

1. Be sure you understand the laws and structuring requirements of a 401(k) plan.

2. Decide whether your company will manage the 401(k) plan.

3. Educate your employees on the different 401(k) plans and the options available to them.

Compile all the basic relevant information for your 401(k) retirement plan

Before opening a 401(k) plan for your employees, it's important to understand all of the tax implications and structuring requirements for both the company and the employee. The IRS has specific rules covering each aspect of a 401(k) plan. A company that doesn't know or follow these rules can suffer severe penalties and sanctions.
Internal Revenue Service about their 401(k) plan information packet. Examine the 401(k) retirement plans for small businesses tutorial from the U.S. Department of Labor to understand the benefits and the process of setting up contribution plan.

Determine how to manage a basic 401(k) retirement plan

With 401(k) plan management, there are essentially two options. You can have a finance employee on your payroll to manage the account or hire an administrator from an outside firm. There are pros and cons with each option. For smaller companies outside management may be the most cost effective option.

Implement an employee 401(k) plan education program so they'll understand the basics

A 401(k) plan won't work the way it's supposed to without employee buy-in. If the employees don't understand or utilize the plan, it will ultimately not have the desired effect. The 401(k) plans' basics, when explained correctly, can reassure the employees of your company's commitment to their future.

• Before you outsource any services to a 401(k) administrator, it's imperative that you contact Securities and Exchange Commission and the Better Business Bureau, to verify their credentials. Outsourcing to a less than reputable company can result in financial and work force losses, which can permanently damage your company.

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