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Medical Spa and Spa Compensation Programs
By: Bryan Durocher
Posted: December 18, 2008
page 4 of 8
A. Like the health plan concept, a retirement plan is a means of providing a valuable benefit to employees as a way of improving employee morale and their connection to the business. There are a number of factors why an employer might choose one type of plan over another, including cost, total number of employees, age difference between employer and key employee vs. remainder of staff, specific goals of the business owner, such as her own retirement needs, consistency of profits, desire to favor certain employees over others Specific types of plans include 401(k), profit-sharing plans and employee contribution. These plans are designed for businesses of at least 25 employees, because there are administration costs (approximately $1,000-1,800 per year); this is a deductible cost. There are IRS tax-form filings required. There is a need for an outside administrator who will monitor IRS-compliance and do coordinated accounting for the plan. There is a legal obligation to periodically inform employees about the plan and to provide adequate plan documentation to afford them the opportunity to make prudent investment decisions. This education should normally be offered by the plan sponsor, such as a mutual fund company. Variations on the 401(k) plan include: plans such as age-weighted plans, which provide an opportunity if the employer is contributing to the plan to skew a higher percentage of those contributions to themselves, if they are older than their employees. New Comparability plans also offer ways to favor key employees and the owner. Generally, these more structured plans cost slightly more than an ordinary 401(k) plan due to increased administration, but they offer significantly greater proportional benefits to the business owner, under certain circumstances. Although there are administrative costs in 401(k) plans, employer contributions do not have to be made, or can be made on an inconsistent basis (depending both on profits and employer desire). The employee can contribute up to $10,500 or 15% of salary and the employer up to 15% of salary up to max salary of $170,000 Vesting. The employer can put a vesting schedule on employer contributions to favor employee retention--usually seven years.
Very important consideration in this type of plan include:
- No administrative costs
- No complicated IRS filings
- Allows employee to contribute up to $8,000+ from salary per year.
- Mandatory employer-matching contribution of up to 3% of employee salary if employee contributes $1,500 (out of a possible $8,000) and 3% of the employee salary is greater than $1,500, the employer is only obligated to match the $1,500.
- This plan would not be suitable for a large organization because the mandatory 3% could end up being far more costly than the administrative costs of a 401(k) plan.
- The employer cannot use a vesting schedule. All employees are immediately vested.
- Overall ability to put large amounts of money into the plan is more limited than in a 401(k).
Life insurance and disability plans
Life insurance can be either group term insurance (usually 1 or 2 times salary), and/or voluntary employee-paid permanent life insurance, paid for through payroll deductions. Group disability covers up to 60% of salary and can be paid either by employer or by employee. Who pays the premium affects the taxability of the benefits if received. These plans are relatively inexpensive, but can potentially be extremely valuable to the employees and overall morale.