401K Services Memphis TN

Planning Options with 401(k)s

To contribute or not to contribute? A plain-vanilla 401(k) plan that only provides for elective contributions from employees would cost you very little but would allow you to offer a plan for yourself and your employees to save and shelter income from tax. If you decide to contribute matching funds to the plan, however, it will obviously have a greater impact on your business's bottom line. A matching feature may increase employee participation, however.

Although a plan may finance contributions solely through salary reductions, a high employee contribution rate may create pressure on employers to provide salary increases to cover plan contributions. If you do decide that you want to match funds, you must then think about whether or not you'll be able to meet that ongoing financial obligation. Matching contributions are a cost that the employer cannot control once the matching formula is set because you cannot control how much employees contribute (though you can set an upper limit of a certain percentage of an employee's compensation, such as 5 or 10 percent).

Investment issues. Once the funds are in an account, they must be invested. This brings up another set of questions. Should employees be allowed to control the investment of their own accounts? Should they be given a few carefully considered investment alternatives? Should investment decisions be made by the plan administrator? While a broad range of investment options is one means of attracting more employee participation, it will also increase the complexity of plan administration.

Borrowing issues. Because funds in a 4...