Paycheck & Benefits
Wed, 2010-01-06 11:55 | 
Tags: 
Why Are Esops Set Up?
You may already know from your own experience that people tend to work harder when they feel a sense of ownership in their jobs. Giving employees the ability to own company stock can make them feel like an important part of the company they work for, increasing their dedication and work effort. When employees feel they are active participants in the workings and direction of their company, they are also more likely to be satisfied with their jobs, reducing turnover.
What Is An Employee Stock Ownership Plan?
An employee stock ownership plan (ESOP) is an employee benefit plan that allocates company stock to employees. By receiving company shares, employees gain partial ownership of the company they work for, including voting rights. All employees age 21 and over who work 1,000 hours or more in a year must be included in the plan. Typically, the longer an employee works for a company, the more shares he or she is eligible to receive. Employees must be...
The Roth 401(k)
The Economic Growth and Tax Relief Reconciliation Act that became effective in 2006 did for 401(k) plans what the US government did for individual retirement accounts a few years earlier: it established a Roth version. Employers who provide 401(k) plans to their employees now have the option to offer this new version as well. Essentially, the Roth 401(k) works the...
Tax Advantages Of Esops
Employee stock ownership plans have tax advantages for both the companies that sponsor them and for their employees. If a company's ESOP follows the rules for IRS qualification, its contributions to the ESOP trust are tax-deductible. Companies can deduct the entire principal and interest on any loan contributions made to the ESOP. Corporate contributions to the fund are also tax-deductible at 25 percent of pay for S corporations and 25 percent of pay for C corporations. Within limitations, they can also deduct dividends that they pay out to employees.
Simple 401(K) Plans
Employers may set up SIMPLE 401(k) plans for their employees. The SIMPLE (which stands for "savings incentive match plan for employees") is an alternative to regular 401(k) plans. The SIMPLE plan is much easier to administer, but it has greater limitations.
How Do Employees Participate In Esops?
Shares of an employee stock ownership plan are allocated to employees based either on relative pay or on a level formula such as seniority. The way in which employees receive the stock may differ depending on the plan. They may buy it directly, receive it as a bonus, or gain it as part of a profit sharing plan.
Contributions To 403(B) Plans
Both employers and employees may make contributions into a 403(b) plan for an employee. However, in most cases, contributions to a 403(b) plan are made from an employee's elective deferrals. The employee signs a salary reduction agreement with the employer, authorizing him or her to reduce a certain amount from the employee's wages. This money is used to purchase an annuity contract or invest in a mutual fund. This annuity or mutual fund is the vehicle in which the 403(b) plan is invested. Before proceeding further, you will need...
What Is A 401(K) Plan?
A traditional 401(k) plan is a retirement savings and investment plan offered by employers to their employees. Many employers like it because it costs less than a traditional pension plan; many employees like it because it can be more lucrative and gives them more control over their retirement income. With a 401(k) plan, you can take a portion of the cash your employer would have paid you in wages and choose instead to contribute it to a tax-qualified retirement account, set up according to rules in...