Advantages and Disadvantages: 401k Plan to the Employer and Employee

Topics: Investment, Pension, 401(k) Pages: 4 (1674 words) Published: March 21, 2011
Advantages and Disadvantages: 401k plan to the Employer and Employee A 401(k) plan is a retirement account to which employee and employers contribute, on which taxes are deferred until withdrawal, and for which the employee selects the types of investments. As with anything to do with the Internal Revenue Service, the 401(k) plan has many ups and downs and many regulations that must be followed. This makes things more difficult for both the employer and employee in making decisions about the plan. We have taken a look at the advantages and disadvantages of the plan from both sides of the table to show what all is involved in deciding to use a 401(k) plan.

First, we take a look at the advantages to the employers to see if it is worth it for them to offer this plan to their employees. The low cost of the plan makes it very desirable. No employer contributions are necessary because the plan can be entirely funded with contributions from your employees’ salaries. Companies do not have to offer any vesting options, unless they want to. If they believe that the employee does not find vesting to be that important, then the employer can just basically set up the plan for their workers and that alone gives the employee a since of convenience. Many employers’ set up 401(k) plans because they are popular and offering one may help them attract and retain good employees. Many college students today are more familiar with retirement plans and may chose to work for a company based on benefits the company may offer. A 401(k) plan could bring these college students to an employer, so it is very important for employers to think about the effects of a retirement plan such as the 401(k) when considering hiring employees. Newman, Page 2

Also, by offering vesting to their employees for each year that they work, there could be increased company loyalty. This could make workers stay at a company longer and decrease the turnover rate. A case in point is a regional restaurant chain...
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