401(k) Answer Book (CCH) Q 1:3

Summary

• Last Updated: 12/2023

  How does offering a 401(k) plan benefit the employer?

  From the perspective of the employer, there are a number of reasons to sponsor a 401(k) plan. A 401(k) plan is a generally low-cost means of providing visible and appreciated retirement benefits to employees. It offers employees a real opportunity to participate actively in saving for retirement on a pre-tax basis. A sponsoring employer may use a 401(k) plan as its sole retirement plan or as a supplement to an existing plan. While 401(k) plans were originally viewed as a supplemental source of retirement benefits, in recent years they have become the primary private sector vehicle for providing those benefits.

  A 401(k) plan can help the employer address employee pressures for additional cash compensation through a matching or nonelective (profit sharing) contribution. A matching contribution may provide the incentive for employees to save on a pre-tax basis. A discretionary match or nonelective contribution may be...