Could some financial advisors or CFO's offer some 401K insight?

Question

I'm doing some research on retirement plans for a company that has about 100 employees, average age 40. They are considering offering 401K, and would like some answers on:

1. % of employers that “match” ?
2. typical percentage or amount matched
3. Do they do it at so many years or immediately?
4. Do you have to be fully vested prior to matching?
5. Any employers that do it right away/ at one year, etc

If YOU own a business with similiar demographics or are the advisor to one, would you please give us some insight?

Answer 1

I'm not sure anyone can answer these questions with any degree of certainty. You might be better off calling some 401k companies who can give you some aggregate data of the plans they offer: Fidelity, Vanguard, etc.

In no particular order:

4. Vesting before match - Sometimes. Many employers have a vesting schedule where the employee must put in years of work before being eligible for the matching 401k contributions. Today, we see these at three years.

2. A typical match is indeed 25% - 50% of the employee contribution up to a specified maximum.

1. Ah ... that's the killer. To have a 401k that passes IRS rules, the company must sell the plan to it's lower-paid workers so that it isn't skewed to the high-paid execs.

How to make sure that your plan doesn't run afoul of the non-discrimination tests? Well, the answer is in #2 above. The safe harbor rules ... but then you can't have vesting of employer contributions.

Ok, I hope you get the picture here. The questions you are asking are not quite the right ones starting out. You need to read a little about 401K tax rules and the link below might prove a helpful start:

Answer 2

I just did similar type of work for a slightly larger firm. We did a very extensive due diligence on the funds and the options available. Sorry I no longer have the worksheets we designed to compare costs, services and expected returns.

First, you should not care what others do, your compensation should match your corporate goals. Retirement plans generally can only anger employees, but not make them happy. Research shows that it does not improve productivity, but it does keep it from deteriorating. A retirement plan is like a ticket into a ball park, it lets you in the gate by providing what is expected. Good employees and more importantly great employees leave firms with poor plans, but do not seek out the firms with the best plans.

1) In my experience, most firms match.
2) 1/2 match is normal, in my experience, but I have seen a variety of schemes including scaling of the match.
3) This should be based upon your turnover goals. Do you want high turnover or low turnover. Is the plan enough to keep people, or just keep irritated people who undermine you?
4) No,
5) Many, but you have to be careful. It is very hard to take something away, it sends all kinds of bad signals, but if you want the plan to be an incentive, they have to be able to participate in it.

Send an e-mail if I can help through Yahoo Answers and I will help if I can. We had a nice committee prepare an internal survey, take feedback, and made the sales forces work for their money. We were surprised at who we found were most competitive, it wasn't the firms you would expect because we had a law firm doing our administration. Unpacking the admin from the funding made firms that bundled them together, in some cases, non-competitive.

Answer 3

1. There is no way of knowing what percentage of employers match, but a lot of the bigger companies do.

2. Usually match 1/2 of employee contribution, but you usually have to have a withholding amount of at least 6%

3. It depends on the company usually 1-3 years

4. usually, yes, but most become automatically fully vested.

5. yes..usually no less than a year

Basically...you need to get in touch with different companies that provide employee 401K Plans...You can usually specify certain things, like if you want an employer match and at what percentage, what funds will be available to choose from, how many bonds, growth and agressive growth funds. Many h ave online capabilities, which make it easy for employees to change contribution amounts, beneficiaries, etc.

Answer 4

1&2) From my experience I would guess the typical match is 6%. Meaning they match the first 6% of your 401k contibution.

3) They have a vesting period. Typically its 5 years. Each year you get to keep more until after 5 years you keep it all.

4) No just to keep it see 3

5) yes