A 401(k) plan permits employees to choose to defer a portion of their wages on a pretax basis. The plan must be part of a qualified profit-sharing plan, a stock bonus plan, a pre-ERISA money purchase pension plan, or a rural cooperative plan. The ability of the employer to "match contributions" has generated interest in the plan at all employee levels. This is important because 401(k) plans include strict tests that require lower paid employees to defer compensation under the plan, in proportion to highly paid employees. (401k.com, 2003)
The major benefit to employees is that they are not taxed currently on the portion of compensation that is placed in the plan. An employee has the option of choosing between cash or future benefits on a year-to-year basis. This protects an employee when faced with unexpected immediate financial needs. (401k.com, 2003)
Article Analysis
In the beginning, the 401(k) plan looked appealing to most employees. …
