Almost nobody can afford to retire on just a 401(k) plan. That’s true even when you add in Social Security.
Fortunately, 401(k) plans can be a good component of an overall retirement package. In 2016 salary deferrals can be as high as $18,000, plus another $6,000 in “catch-up” contributions for participants age 50 and over. When a 401(k) plan is properly combined with profit sharing and possibly a cash balance or defined benefit plan, people can accumulate enough money to actually retire!
401(k) plan designs have evolved substantially in recent years. Some useful 401(k) options are:
- Automatic enrollment (with or without escalation)
- Early-start 401(k) plan with immediate deferrals, but later match/profit-sharing eligibility
- Safe-harbor plan design
- Designs that encourage increased employee savings rates, such as extended match schedules
- Coordination with a profit sharing or defined benefit pension plan to maximize retirement savings opportunities
We provide plan sponsors with a clear and independent analysis of their 401(k) plan and help you analyze 401(k) plan design from a benefit and cost perspective. You need a 401(k) plan that utilizes the latest design features to:
- Encourage and reward employee savings,
- Support the additional profit sharing or cash balance plans that complete the package, and
- Keep costs within budget.
You can create a surprisingly cost-effective retirement package when you properly combine a 401(k) plan with a cross-tested profit sharing and/or cash balance plan.