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Friday, Mar 29, 2024

SELECTING THE RIGHT BUSINESS R

If you had a choice of getting 30% return on your $10,000 annual 401(k) contribution or putting $30,000 per year into a passbook savings account, which would you choose? Company sponsored retirement plans, such as 401(k) and profit sharing plans, are some of the most appealing employee benefits offered in the workplace today. When selecting an employer, applicants often determine which job offer to accept based on the quality of the retirement plan. Finding the right plan design to maximize the benefit for all levels of employees in your company will insure high participation and increase morale among employees. In short, a growing business can attract key employees with a good retirement plan! In addition, the business will get the satisfaction in knowing that it helped its employees save for a comfortable retirement. There are many different options available in designing a retirement plan for your company, the most common being the 401(k) plan. Large corporations to small companies have installed 401(k) plans for the benefit of their employees. The structure of “qualified” retirement plans can be quite flexible. However, the most important point to consider are the specific needs of your company and how the retirement plan can be designed to meet those needs. The current IRS maximum annual 401(k) contribution amount is $10,000. While many people do not contribute to the IRS limit, even employees who do maximize their contributions often realize that they do not have enough money saved to retire comfortably. As an employer seeking to provide a benefit to your staff, what options do you have in providing additional retirement benefits to your valuable employees? Your company can blend the benefit of the 401(k) plan with a company sponsored contribution, such as matching contributions and profit sharing plans. Matching contributions can be arranged with a great deal of flexibility and discretion. In fact, certain matching contribution formulas can be used to avoid the annual IRS compliance testing. These are known as Safe Harbor Matching plans. This type of plan provides participant’s the ability to contribute up to $16,400 per year when used in tandem with a 401(k) plan. If your company would like to achieve higher contribution amounts, profit sharing plans can be utilized to get to the IRS maximum annual contribution limit of $30,000. Profit Sharing plans have been used for many years with great success. There are different options that may be used in allocating the profit sharing contribution. The Tiered or New Comparability option is one example of an allocation formula that allows the plan sponsor to make substantial company contributions to their most valued employees who are seeking the maximum contribution. As you review your own investment returns in your current 401(k) plan, keep in mind that strategic plan design is equally important as your investment fund options. Mark O. Edwards is an Account Executive with Manulife Financial’s Southern California Regional Pension Office. Call 818/552-3400, extension 203, for more information.

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