401k Plan
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Quality Employees
Part I - Attract Quality Employees with a 401k
Retirement Plan
by
Bruce Fenton, Founder and President of Atlantic Financial
A company's growth is only as good as its employees. With salaries and benefits of high-quality employees increasing at a rapid rate, even small companies need to provide modern benefits if they are to compete. One of the most important and common benefits is a retirement plan such as a 401k, Keogh or Defined Benefit Plan.
The 401k plan is by far the most popular due to its low cost to employers and high popularity with employees. Entrepreneurs and senior managers often have difficulty juggling the responsibilities of growing their business with the selection, evaluation and ongoing monitoring of employee benefits. Despite the drain on time, the responsibility is not to be taken lightly. A poorly set up 401k retirement plan can cause a level of unhappiness and resentment among employees far worse that if you had no 401k retirement plan at all. Worse, anyone setting up a 401k retirement plan and acting as trustee becomes a fiduciary and is subject to several legal responsibilities. The penalties for not complying with these legal responsibilities, such as Department of Labor and Pension Welfare Benefits Administration penalties can be stiff. A common Department of Labor penalty is to fine the trustee one third of the plan value for compliance violations.
On the bright side, properly set up plans can run smoothly with a minimal amount of effort by the entrepreneur or manager and can increase happiness and loyalty for employees for many years to come.
For companies setting up a plan for the first time, the most common primary concern is cost. The startup costs of 401k plans range from $500 to over $5,000 with an additional charge ranging from $10 - $150 per person. In some cases, the most expensive plans are the ones that can cause a business owner the most headaches, however in many instances, you get what you pay for. Trustees who find themselves pulled in many directions with running a company should consider plans that provide features designed to save the company time. It is also advisable to coordinate your payroll deduction and 401k deposits into the plan with a payroll company. This is not to say that you should necessarily use the in-house 401k plan offered by your payroll company. Since these plans are often tangential business for payroll companies, you may not to receive that same amount of expertise and support you would get by working with a qualified investment firm or mutual fund company. The firm you select to manage your plan should be a mutual fund company or investment firm.
Plans that are usually the most streamlined are those known as bundled plans, meaning that the administration and investment functions are bundled together into one convenient package. These plans often cost more than unbundled plans, those plans in which you select one company for investment work and another for administration. With bundled plans, you have only one place to turn for problems that may arise with your plan. Employers can also save time by selecting an investment advisor who provides services such as answering employee questions and enrollment of new employees. Many times such advisors are compensated by the fund companies who offer 401k plans so it isn't usually necessary that the entrepreneur pay extra money for an advisors services. Savvy employers may be able to convince an investment professional to provide discounted financial planning services to all employees outside of the 401k plan activities. An investment counselor eager to receive the 401k business of a fast-growing employer will provide such additional incentives. This enables the employer to offer financial planning as another employee benefit without additional cost to the company. Purchased as a separate benefit, financial planning services for employees may cost between $30 and $150 per employee, often with an additional hourly surcharge.
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