As an employer, you want to reward great employees when you find them. Keeping these employees happy isn't always easy. In fact, according to Globoforce, 47% of HR executives said employee turnover and retention is their biggest challenge.
So how do you rise to the occasion? By solving a problem your key employees have: retirement planning.
It's ironic that the better you pay your executives, the more it adversely impacts their retirement planning. Did you know that the better they're paid, the less they can contribute to a retirement plan, such as a 401(k)? As of 2014, you're only allowed to contribute $17,500 per year if you're under 50. For a worker making $50,000, that's 35% of their pre-tax salary. For a worker making $200,000, that's only 8.8%.
To retain the employees who make a real difference at your company, offer them a 401(k) lookalike plan, funded by life insurance.
The Advantages of a 401(k) Look-Alike Program
When you offer a 401(k) look-alike plan to your most valued employees, it lets them do three things:
- save for retirement at a greater level than they could through a 401(k) alone
- grow those retirement savings tax-deferred
- reduce their taxable income
Implementing a 401(k) Look-Alike Program
Getting started with this kind of benefits plan isn't hard. I can help you get the ball rolling. Here's how it works:
- You and your key employee create an agreement that spells out who contributes to your 401(k) look-alike plan. Your employee will defer a percentage of his compensation before that compensation is earned. You get to decide the maximum percentage he can set aside. It's also up to you whether to match any or all of the employee's contribution.
- You buy a life insurance policy, insuring your key employee.
- You pay for the policy.
- When your employee retires, you can use the policy's cash value to pay retirement benefits to the employee. Those payments are treated as income for the employee, but they are tax-deductible for you, the employer. Should the employee passes away before retirement, the death benefit provides funds for his or her family.
With 401(k) look-alike plans funded by life insurance, everyone gets what they want. You retain a valuable employee with superior benefits, while your employee gets to sock away more money for retirement and protect his or her family with life insurance.