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Employee retirement plan tips
Employee Retirement Plans Buyer's Guide
- When cash flow is tight, it's tempting to save money by cutting back or stopping your employer match, but that's a mistake. If the matching was a big reason low- and mid-level employees signed up, taking it away could cut back on participation and increase your risk of failing discrimination testing. Try to find other areas to cut back, such as offering fewer investment options or eliminating sessions with an investment advisor.
- Don't forget about the tax benefits to starting an employee retirement plan. Since 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) has provided a tax credit of 50% for setting up the plan and educating employees. You can receive a maximum credit of $500 per year for three years.
- Make sure that you offer direct rollovers for employees with a 401k or IRA from a previous employer. This way, the check from their old plan goes directly to your provider for deposit. The check never reaches the employees' hands and they don't have to pay any taxes or penalties on the amount rolled over.
- If you offer company stock as a profit share option, make sure it is a small percentage of total benefits. After the Enron scandal, many employees are concerned about losing their nest egg if a company ever goes under.
- If you pass some of the smaller fees onto your employees, try to keep them reasonable. Most companies will pay for individual account fees (except for sale and exchange charges). If employees have to keep paying out of pocket or a percentage of their account for every service, they may lose interest in the plan.
- If you choose to allow loans against your 401k plan, employees can borrow up to 50% of their vested account balance for up to five years. Even without a loan provision, employees can still request withdrawals for specific hardships, such as losing a job or medical emergencies. This is not your responsibility – your plan provider should detail these requirements in the plan document, or direct employees to additional information through the IRS web site.
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