Foreign companies coming to the US are often unsure exactly what falls under the designation of 401K. 401K is a privately held pension plan. An employer in the US is not obligated to provide a 401K plan to its employees, but in today's competitive labor market, the high-tech employer sometimes feels compelled to offer it as a lure to attract competent and committed employees. The first step for a Start-up is to put in place a pension plan, wherein employees can contribute up to $10,500 for year 2000, tax-free. In this case, the employer supports the administration costs—about $2,000, depending on the number of employees per year. Either benefit consultants or insurance brokers typically provide 401K plans. You must keep in mind that these funds offer no guaranties and therefore it is important to deal with a blue chip company. The second step is to add an "employer's contribution," which is left to the company's discretion. This contribution (based on the employee's contribution), can be up to 50% of the investment amount of the employee. The third step is to elect the vesting schedule—that period of time after which the employee owns the employer's contribution. This can be used as a tool to retain the work force. The administration costs are unchanged.
By Marie Landel, Marie Landel & Associates. If you have any questions, you can e-mail to her directly by clicking here.