Implementing A Traditional 401 ( K ) Plan

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Recommended Plan We recommend that SmartKidz initiate a traditional 401(k) plan. A traditional 401(k) plan is a defined-contribution plan for for-profit organizations. In this plan, employees are allowed to contribute a percentage of their salary before taxes up to a maximum contribution, which is $18,000 as of 2015 (IRS). In addition, employers may choose to add to each employee’s 401(k) plan through matching each individual contribution or providing a one-time lump sum. Each employee has a tax-deferred account where he or she is able to choose where to allocate his or her contributions. For example, mutual funds and target funds are common investment options. Overall, a retirement plan, such as a traditional 401(k), is the key to a…show more content…
In addition, there is more portability for retirement savings; 401(k)s can be rolled over into IRAs if employees change companies. This is a significant benefit for millennials who are expected to remain with companies for 3-5 years before switching. Further, as for retirement plans similar to a Roth or Safe Harbor, a traditional 401(k) is less expensive and easier to manage. However, these types of plans can be added on later, if SmartKidz would desire. Suggested Provisions In a preliminary outline of the plan, we have several key suggestions. First, SmartKidz should allow both full-time and part-time employees to contribute to a 401(k) plan. Although part-time employees may result in higher administrative costs as a result of the high turnover associated with this category of workers, it is very important for these employees to be able to contribute to retirement plans. All of SmartKidz’ part-time employees are between the ages of 25 and 65; they are not high school students trying to earn a paycheck. Your part-time employees are part-time for a reason—pregnancy, disability, and other household duties—so to accomplish your goal of showing respect and dignity, you should allow them to put money towards their future. In addition, allowing every employee to contribute would reduce the possible tension between full-time and part-time employees and increase the overall morale. Additionally, it could even reduce the turnover in part-time
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