The 401(k) plan is a type of employer-sponsored defined contribution retirement plan under section 401(k) of the Internal Revenue Code. It is one of the easiest and most effective ways to save for retirement. The plan allows your employees to save for retirement while deferring income taxes on the saved money and investment earnings until withdrawal. The employee elects to have a portion of his or her pre-tax wage paid directly into his or her 401(k) account. The employer may also make contributions on behalf of the employees and a typical arrangement is for the employer to "match" the employee's contribution up to a certain percentage of their salary.

In participant-directed plans (the most common option), the employee can select from a number of investment options, usually an assortment of mutual funds that emphasize stocks, bonds money market investments, or a mix. Many companies' 401(k) plans also offer the option to purchase the company's stock. The employee can generally re-allocate money among these investment choices at any time.

In the less common trustee-directed 401(k) plans, the employer appoints trustees who decide how the plan's assets will be invested.

A strong retirement plan will help you retain valued employees and Benefit Design Associates can assist you with determining your best options.

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