Do You Really Know Your Definition of Compensation?

christmas-bonus-cash‘Tis the time of year when many companies look back at their books to determine whether or not they can afford to pay year-end bonuses to their employees. If you are one of those companies who can give a little extra to your workforce this year, now is the time to take a closer look at your plan’s definition of compensation.

Just last week one of my plan sponsors called in a bit of a panic about how she was going to make sure that each employee received the bonus amount that the president of the company wanted to give them. Seems straight-forward enough, but her concern was how to correctly calculate the bonus amount to include tax, social security, and 401(k) bonus amounts. In other words, the president wanted each employee to receive $500, not $442 or $415, so our client was frantically trying to account for each employee’s 401(k) deferral amount in order to ensure that she gave each employee enough to get to the $500 mark. Before we started crunching the numbers, I stopped to praise her for knowing her plan well enough to know that bonuses were included in the definition of compensation! Because of her awareness, not only are the employees going to get a full $500 bonus (and those who defer into the plan will receive an even higher gross amount than their noncontributing counterparts), but the plan is safe from a possible finable offense.

On the other hand, we have also encountered some prospective 401(k) plan clients that did not have the same familiarity with their plan documents. In one case, a plan sponsor told us that no one expects 401(k) deferrals to be withheld from their paychecks, so they never had deducted that amount. Sound familiar? This is one of the most common mistakes we see plan sponsors make. Their intentions are good, but their execution is flawed. The fact is, if your company’s 401(k) plan document definition of compensation states that all W-2 wages and bonuses fall under W-2, then you must withhold deferrals (unless there are other provisions excluding them).

Unsure of what your 401(k) plan document says about bonuses or how to find this information? Please give me a call at 205.970.9088 or e-mail me at and let me help you!

The Best Gift You Can Give to Your Employees

christmas-piggy-bankLast week we looked at how a well designed 401(k) plan can be a great gift to your company. This week I want to explore how this same 401(k) plan can be a great gift to give to your employees.

One of the most clichéd, yet true statements regarding employees is, “Our people are our greatest asset.” Does your company believe that? My guess is yes. Therefore, a better question might be, “How does your company show your people that they are your most valuable asset?” I believe a well designed 401(k) plan can go a long way in helping your people feel their worth.

Employees are telling their employers they want good benefits. It is no surprise to anyone reading this that financial stress consistently tops lists of people’s greatest concerns. Many of your employees are faced with the costs of raising children and caring for the needs of aging parents all while trying to balance saving for their own retirement. This stretching of the dollar is causing a retirement crisis. However, as an employer you can help by offering a retirement plan. A study conducted by Lockton Retirement Services and detailed in the report “Finding the Links Between Retirement, Stress, and Health” found that 52 percent of respondents reported that having a retirement savings plan helps ease financial concerns “a great deal” and an additional 43 percent said it helps “a little.” Furthermore, those employees with access to a retirement plan in which the employer contributed to the plan reported higher levels of job satisfaction and lower incidents of physical ailments.

Employees are also looking to their employers for guidance when it comes to savings. In May 2015, Northern Trust released a study that surveyed more than 1,000 defined contribution participants and asked about their desire for guidance on retirement savings and the role of the plan sponsor. The results were very telling – 88 percent of participants strongly or somewhat favor their employers providing tools to help determine if they are saving the correct amount for a financially secure retirement, 80 percent believe employers should encourage employees to contribute to their retirement plan, 84 percent support employers offering incentives to contribute, and 72 percent think employers should provide a viewpoint on contribution amounts. There is a careful distinction to make when it comes to who is actually providing the education that employees desire. I would suggest that your company would be best served to hire a financial professional to deliver the education about the plan.

Finally, employees need tools that can assist them when it comes to understanding how saving into a retirement plan can positively impact their retirement futures. The retirement industry has come a long way in developing interactive calculators that can assist your employees with modeling what their retirement could look like. A good version allows employees to enter outside accounts, social security information, spousal information, and other personal information to come up with the most accurate predictions. If your current retirement provider does not offer anything like this, it may be time to shop around.

Your employees look to your company to provide the gift of helping them to save for retirement. If you do not think your current plan is helping deliver that gift, please call me at 205.970.9088 or e-mail me at, and I will get to work for you today on developing a plan that works for your company and its employees.