Author Topic: How do I pitch a 401k plan to employer?  (Read 3569 times)

k-vette

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How do I pitch a 401k plan to employer?
« on: April 21, 2014, 08:57:00 AM »
We dont have a 401k plan.  What are the benefits to my employer in offering one?  Id like one, and I have a lot of pull on what goes on in the company.  I have no experience however with 401k.

This is a small company based in california.  The owner has 2 other businesses, all around 10-15 employees.


BuzzardsBay

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Re: How do I pitch a 401k plan to employer?
« Reply #1 on: April 21, 2014, 09:47:21 AM »
I would point out the ways in which it would be positive for the employer.  Two things are:

1.  Helps to find and retain good employees.  Good people aren't as easy to find when you don't offer competitive benefits.

2.  If the employees take the pay deduction pre-tax (not as a Roth 401k) then it reduces the amount of FICA the employer has to pay which saves the company money.

dandarc

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Re: How do I pitch a 401k plan to employer?
« Reply #2 on: April 21, 2014, 10:01:27 AM »
I would point out the ways in which it would be positive for the employer.  Two things are:

1.  Helps to find and retain good employees.  Good people aren't as easy to find when you don't offer competitive benefits.

2.  If the employees take the pay deduction pre-tax (not as a Roth 401k) then it reduces the amount of FICA the employer has to pay which saves the company money.

#1 - totally agree.  #2 is wrong - 401K contributions do not reduce FICA.

401K probably costs the employer a bit of money, but it can be a pretty low cost.  Even a non-matching 401K is quite valuable to employees - which goes into tip 1 about finding and retaining good employees.  Getting and more importantly, keeping good people should be extremely valuable to the employer.

FrugalSpendthrift

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Re: How do I pitch a 401k plan to employer?
« Reply #3 on: April 21, 2014, 10:05:08 AM »
There is an administrative cost to the employer, but I would think that these benefits would outweigh that.
  • A more comprehensive benefits package can help attract and retain the most valuable employees.
  • Granted that they can pass the non-discrimination tests, they could defer a lot of their own tax liability.  If they use a profit sharing plan, then they could defer far more than the $17,500 contribution limit.

Mr. Frugalwoods

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Re: How do I pitch a 401k plan to employer?
« Reply #4 on: April 21, 2014, 10:15:41 AM »
A 401k plan, even without any matching funds, is going to cost an employer money in HR time and administration fees. 

Any business more complicated that burger flipping is also going to spend significant money on training and recruiting new employees.

From a business perspective the theory is that offering a 401K will reduce costs to recruit and retain valuable employees.  Obviously a 401K plan is a great benefit to offer to potential recruits.

But perhaps just as important, many 401K plans with matching also have a vesting schedule.  A common example is a 3 year even split vesting schedule.  In that case, if you leave after 1 year you get to keep 33% of the employer matching funds.  After 2 years, 66%, and so on.

This is a "golden handcuff" strategy to reduce turnover.  The reduction is training and recruiting more than offsets the amount spent on the plan.

Finally, offering a plan is just a humane thing to do.  Not sure that argument will fly at your workplace, but it's the truth :-)

lackofstache

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Re: How do I pitch a 401k plan to employer?
« Reply #5 on: April 21, 2014, 10:34:38 AM »
Aside from what others have said, you can also look into a SIMPLE if it's a fairly small company. The admin fees are paid by the employee rather than employer, so setting up and maintaining it doesn't cost the employer anything except time if no one is contributing. You can set up a match or not, but simply offering the option for tax shelter would be beneficial. Obviously, as an employee, paying the fees isn't as exciting, but it may be better than nuthin'.

Cheddar Stacker

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Re: How do I pitch a 401k plan to employer?
« Reply #6 on: April 21, 2014, 01:52:42 PM »
If they shop around, the cost to the employer doesn't have to be more than $5-$10K/year. While that's certainly not a small amount, it's manageable to keep your employees happy.

On the down side for your specific situation, there are specific rules related to controlled groups. What is a controlled group you ask?

Employees of two or more trades or businesses under common control for any period are treated as employed by a single employer. Generally, common control means 80% ownership.

If the owner is just one person for all three companies, ERISA requires any retirement plan, and all the related benefits like a company match, to be applied across all of his/her companies. This would also apply to a profit sharing plan, and most other type of group benefit plans. This could be exactly why you don't already have a plan.

#2 is wrong - 401K contributions do not reduce FICA.

Just wanted to second what dandarc said. Employer and Employee pay FICA based on earnings, and contributions don't decrease earnings they decrease federally taxable income.