Doesn’t this song make you want to do the #electricslide
A 401k is a type of qualified retirement plan offered by employers that allow an employee to deposit pre-tax dollars from each paycheck into a retirement account. When the employee retires, the money that was paid in and the investment gains provide an income.
* Choosing a 401K over a traditional pension puts the responsibility of contributing and investing for the financial future on the employee, not the employer.
* The IRS doesn’t require employers to match employee contributions.
* Having a retirement plan helps attract, RECRUIT and keep talented employees.
* Employers receive TAX BENEFITS for contributing to 401k accounts.
Most employers these days prefer defined contribution plans like the 401K, to the traditional pension that was entirely funded by the company.
The pension plan was a monthly payment for life, in an amount based on the employee’s tenure and salary history. Aside from the obvious financial burden, the plan required employers to manage a retirement investing and payment system.
In contrast, 401k and other defined-contribution plans put the burden of contributing and investing on the employee. They don't GUARANTEE or "define"a set payout at retirement.
This ends up being far more cost-effective for the EMPLOYER.
The IRS doesn't require matching the employee's 401k contributions, but many employers do so. The "company match" is a key “selling point” inside the company. A certain percentage of a firm's employees must participate for a plan to be considered legitimate by the IRS.
The employer match is used as a tool for recruiting employees. The match is a very attractive benefit for recruits. If an employee has offers from more than one company and all else is equal, the 401k contribution matching could become a factor in choosing one firm over another.
Also, employers receive tax benefits for contributing to 401k accounts. Specifically, their matches can be taken as deductions on their federal corporate income tax returns. They are often exempt from state and payroll taxes as well.