July 7, 2006

Investment adviser can help your company define its goals

401 (k) plans are a popular and successful retirement savings plan for small and large businesses.

This defined contribution plan enables employees to choose between receiving current compensation and making pre-tax contributions to an account through a salary-reduction agreement. Employers may make contributions to employees’ accounts.

When a company decides to implement a 401 (k) plan, it should have an idea of what it wants to accomplish with the plan.

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An investment adviser can help you define your goals, whether they are saving taxes or providing a benefit for your employees that will encourage them to stay with the job.

There are two important steps in setting up a 401 (k) plan. The first step is choosing the investment options that will be available to your employees. The second is deciding whether or not to match employee contributions.

When selecting the mutual funds, the employer should look at the options available because the number of investment options can number in the thousands. It is the employers’ responsibility to investigate fund options that have manageable choices to the employees. They also need to follow the guidelines in the Employee Retirement Income Security Act. This act requires the employer to offer a “broad range of investment alternatives.” The employer will need to present a variety of investment funds that have different risk and return statistics.

Employers should do their best to keep the plans simple. The 401 (k) plan includes investments in a mutual fund. There are some mutual fund companies that allow your employees to choose from any funds they like. It is best, though, to give your company no more than eight different mutual funds from which they can choose. The reasoning behind this is because if it becomes too large of an assortment of funds, it will require significant time and energy from you.

This is where the investment adviser comes in. An adviser can help you set everything up, conduct day-to-day operation of the plan and select a plan administrator, who would handle tax reporting, manage assets and generate reports for the employees.

One does not always need to have a financial planner because some mutual fund companies help employers set up a 401 (k) plan. This may cause a problem because you may find that in order for your plan provider to offer you certain services, you must agree to offer funds only from their portfolio.

From the employee’s standpoint, you should find a mutual fund that best fits the investment style. Risk factors can play a part in what plans you can select. Some of these factors are age, how long until retirement and the ability to handle market fluctuations.

Next, the employee will need to decide how much of his or her salary will go toward retirement. A person’s maximum before-tax contribution (i.e., 401 (k) limit) for 2006 is $15,000. It’s important to understand this limit. This figure indicates only the maximum amount that the employee can contribute from his/her pre-tax earnings to all of his/her 401(k) accounts. It does not include any matching funds that the employer might graciously throw in.

If the employee has other investments, it is best to not have the same setup. For example, if your other investments are high risk, make this one low risk.

The maximum before-tax contribution limit is subject to the catch-up provision, which is available to employees who are over 50 years old. This provision allows these employees to contribute extra amounts over and above the limit in effect for that year. The additional contribution amount is $5,000 in 2006; thereafter, it increases by $500 annually.

When first starting a 401 (k) plan, it can seem very complicated. After a while, you will be able to understand the policies and have happier employees who may receive handsome incentives.

401 (k) plans are a popular and successful retirement savings plan for small and large businesses.

This defined contribution plan enables employees to choose between receiving current compensation and making pre-tax contributions to an account through a salary-reduction agreement. Employers may make contributions to employees’ accounts.

When a company decides to implement a 401 (k) plan, it should have an idea of what it wants to accomplish with the plan.

An investment adviser can help you define your goals, whether they are saving taxes or providing a benefit for your employees that will encourage them to stay with the job.

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