Because of recent tax law changes enacted by Congress, now is
the time to review and implement changes that can increase the
effectiveness of your company's employee retirement plan for 2007
without significantly increasing the after-tax cost of the plan for
your company. Simple changes may allow you to increase
contributions for owners and other key employees without
significantly increasing contributions for all other employees. New
plan provisions allow larger contributions to higher-earning
employees while maintaining a reasonable level for rank-and-file
employees. This type of contribution shifting would balance out the
benefits provided by the retirement plan to more evenly reflect
401(k) plans currently are the most popular employer-sponsored
plans available and often the least understood. However, extremely
low participation rates by many employees can reduce the
effectiveness of a 401(k) plan for higher-paid employees. Internal
Revenue Service regulations restrict the deferral rate of highly
compensated employees to a maximum of 2 percent more than the
average of all other employees.
Following are options for increasing plan effectiveness for
employees in all salary ranges.
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