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Matching, Vesting, and Deferred Compensation (Part 3)

Deferred Compensation - navigation

Corporate and Institutional Investors

In the beginning stages, it is often difficult for companies to match employee contributions . Use of a good plan document during the setup process will allow the entrepreneur the choice of contributing. Many entrepreneurs delay making an employer contribution until they are sure that they are able to do so permanently. It is easier to offer no employer match at all than it is to offer an employer match then take it away from employees. If you are in a high turnover business, such as many technical and sales companies, you may wish to provide a large match but make it only available to participants after a long vesting period such as five years. This will encourage employees to stay at your company longer. On a side note, this can also be effectively combined with deferred compensation in which a percentage of an employees salary is deferred for a period of five years and then paid at the end of that five years. Deferred compensation serves the dual role of acting as a method to encouraging employees to stay and providing the entrepreneur with extra funds when an employee leaves before the five-year period has elapsed. The extra funds from un-vested dollars and deferred compensation can be used be used to ease the burden of losing the employee and to help refill the position.

More 401k Information:
401k Plan | 401k Plan Services | 401k Plan Investment Options | 401k Plan Setup

Aside from all the setup concerns, it is important that growing companies act to at least set up some type of plan, rather than paralyzing themselves with a decision and ending up not setting up a plan for years. 401k's serve as an effective vehicle for growing companies because they can grow easily to accommodate the largest of corporations. Keoghs, simple plans and other options may offer initial advantages but are not usually ideal for those companies who plan on adding large amounts of staff in the coming years. All options should be researched with the assistance of a qualified specialist. Early stage growth companies should be able to set up a simple basic plan with start up costs in the neighborhood of $800 and ongoing costs in the neighborhood of $15 per person (Note: Costs and options may vary). On the low end of the cost spectrum, this type of plan will adequately serve most companies. Small companies can always upgrade to a more advanced plan as their budget for benefits increases. Companies who are in a fast growth stage who either have a basic plan or are in dire need of one due to a large number of new employees should chose a more advanced plan. This may be a bundled plan and/or a plan that provides options from numerous fund companies. These plans are more expensive but if it is set up properly by a qualified company, will be able to grow with the company at a rapid rate and absorb any number of new employees that are added to it.

The prospect of setting up a 401k plan may seem intimidating, confusing or expensive at first but it is a necessary tool for those wishing to join the ranks of Americas largest and most successful growth companies. Dell, Microsoft, Intel, Lotus, Lucent and many others have combined quality 401k plans with premium employee education to attract and retain the employees they need for continued growth. With proper education and research, entrepreneurs can provide this important benefit to his or her employees in a cost-effective manner and with minimal effort.


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