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.
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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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