401k Plans Need More Planning-- Part 1

MALVERN, Pa. - Dec. 23, 2015 - PRLog -- There are many companies out there with 401k Plans, but most of them do not research and consult into “why” the plan needed to be setup, “how” it should be setup and “who” would benefit from this structure.  Many of these plans were setup quickly to get started fast, but never revisited.  There are so many things to consider when setting up a 401k plan, but flexibility and high participation rate are the two keys to a successful and long sustaining 401k plan.

One of the first things to think about is “why” you are you setting up this plan.  Is it for ownership and top management, to attract and retain employees, to reward and motivate them or is it because all your competitors offer one so you thought it would be a good idea?  It is possibly for one, some, most or all of the previous reasons. If you are looking at the long-term, the answer should be “all of them”.  Building a business has so many components to its success, thinking about and considering a 401k plan typically is not one of the first items that one considers. However, it is an important ingredient to the overall recipe.  As you know, when trying to setup, build and expand any business today, it is the people that are the gas to the business engine. It takes several reasons for the “best” talents to consider joining your company. In addition to the job opportunity, the compensation package can make or break a decision to choose your company over one of your competitors. As each day passes, the retirement crisis gets worse and most people feel that they will never be able to save enough to achieve financial freedom. The last thing they want to think about when they join a company is whether or not there will be a plan to help them save for retirement.

When you are thinking about the “why” for setting up a 401k plan, remember that it is all about the people that will be participating in the plan.  However, ownership and key executive members may have more opportunities than the average salaried individual to maximize their annual contributions. Hopefully a company match will be considered to entice participants to participant in addition to maximizing what they can to the plan in order to take advantage of the match.

Part 2 will focus on the “how” for plan structure and Part 3 will review the “who” when it comes to benefiting from the 401k Plan.