The importance of plan design cannot be understated. Proper plan design is based on the company’s objectives.
In short, there are only three reasons for a company to sponsor a 401(k) plan:
- 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
Consider the following examples, and the reason each company might choose to sponsor a 401(k) plan:
Ex: Dentist office, highly paid, 5 employees:
- To provide an employee fringe benefit in order to attract and retain personnel – 20% (somewhat important)
- To put way money for business owners tax deferred – 80% (very important)
- The company does prevailing wage work – 0% (not applicable)
Ex: Small manufacturing facility, 182 employees, hard to get help:
- To provide an employee fringe benefit in order to attract and retain personnel – 90% (extremely important)
- To put way money for business owners tax deferred – 10% (minimally important)
- The company does prevailing wage work – 0% (not applicable)
Ex: Contractor, 104 employees, 60% of work is prevailing wage:
- To provide an employee fringe benefit in order to attract and retain personnel – 15% (somewhat important)
- To put way money for business owners tax deferred – 15% (somewhat important)
- The company does prevailing wage work – 70% (very important)
Each company’s unique business circumstance, and the relative level of importance placed on the three reasons above, determine the best fit when designing a 401(k) plan. Each company’s workforce, the ability to communicate with this workforce, and the company’s internal office processes all affect a plan’s optimal design.
Whether an existing plan or a new plan, we start with what the company is trying to accomplish, then customize a plan together.
