Employers have much to consider when choosing to sponsor a 401(k) plan. Fees, investments, administration, testing, design, notices, and participant education all require detailed attention. But why would an employer choose to sponsor a plan? There are only three reasons:
- To provide an employee fringe benefit in order to attract and retain personnel
- To put away money for business owners tax deferred
- The company does prevailing wage work
The specifics of the plan, which include items such as eligibility, vesting, time to entry, money sources, distribution options, and other details, are determined based upon the reason for the plan itself.
Consider the following examples, and the reason each company might choose to sponsor a 401(k) plan:
Ex: Contractor, 104 employees, 60% of work is prevailing wage:
Here, the company’s primary objective may be to save the wage related burden on the prevailing wage required fringe. The company may also be interested in maximizing contributions for business owners and using the fringe benefit to attract and retain personnel.
Ex: Small manufacturing facility, 182 employees, hard to find and keep good personnel:
This company’s primary objective may be to have a tool it can use to attract and retain key personnel to differentiate them from their competitors. The business owners want to take advantage of putting money back for themselves as well, but only if it is in the best interest of the company.
Ex: Dentist office, highly paid, 5 employees:
For this company, the primary objective may be to put away as much money for the business owner as possible, while also providing an employee fringe benefit that will help attract and retain employees.
Whether an existing plan or a new plan, we start with what the company is trying to accomplish. Each company’s unique business circumstance, and the relative level of importance placed on the three reasons to sponsor a plan, determine best fit. Our Administration services, Recordkeeping services, access to WorkerServices, and other plan services directly support each Plan Sponsor successfully utilize a plan that fits their unique company needs.