Understand why you’re doing this.One of the most common mistakes companies make when it comes to a 401(k) is not knowing why they’re setting it up, says Jewell Lim Esposito, partner in the benefits practice group at the national labor and employment law firm Constangy, Brooks & Smith, LLP. “If it’s a tool to be competitive in the marketplace, then design the plan in such a way that employees are rewarded,” Esposito says. “If it’s a tool for retention, then build in safeguards and incentives for employees to stay at the company and in the plan. If it’s a tool to compensate management, then do the company contributions so that they flow through to management — in a legal way.”
Esposito adds that frequently entrepreneurs “don’t understand their own employee demographics before setting up the plan. An employer with a very young population might have employees who don’t even stay a full year at work. If that’s the case, then why incur the cost of letting them enter the plan, just to have them leave?”
When designing a retirement plan for your company make sure your adviser is well versed in the current regulations. Take your time and perform due diligence. This will pay off in the long run.
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