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Author: Tiddman Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75625  
Subject: Re: No 401K Offered Date: 10/2/1998 8:29 AM
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> Here's the issue - I AM a full-time employee! There
> are about twenty of us, all full-time attorneys
> who are not shareholding partners, who are not
> offered the 401K plan.

I am a VP in a small software company and we just changed our 401(k) plan, maybe I can provide some insight.

A 401(k) program is actually fairly expensive to set up and requires a lot of administrative overhead -- each time someone is hired, fired, or gets a change in salary, the 401(k) program changes. There are also tax implications for the company. If a 401(k) is tied to company stock, it's even more complicated. It also means that a portion of the company's assets may be tied up with this other program, something which some management teams object to.

No 401(k) companies would come near us until our company was above about $1M in gross revenue, and we ended up hiring a company to take care of most of the administrative work. To this day lots of large, successful companies don't have 401(k) programs, though that is becoming increasingly rare.

The companies that offer 401(k) programs typically want you to ensure that they'll get a lot of participation from your employees -- i.e. they want lots of cash flow and fees.

For example the company we used wouldn't sign us up unless 80% of our employees contributed and we had to meet annual contribution goals. It turns out that at the time, we had a lot of employees that were right out of college (e.g. relatively low-paid) that were trying to maximize their take-home pay and/or were not much into retirement planning, so they weren't interested in the 401(k) program. What our 401(k) company suggested (and we declined) is that we make the 401(k) program available only to certain employees based on tenure with the company and salary level and some other things, and then ensure that all of those people get into the program, and we still had to meet annual contribution goals. This is perfectly legal -- a 401(k) program is a benefit, not an entitlement, just like a raise or a nice office, and the company isn't required by law to provide this to all employees.

Anyways I wonder if a similar sort of thing has happened at your company. Maybe they are only willing to accept the administrative overhead and costs for certain employees that have been there for a while, are likely to stay for a while, are high-paid, are instrinsic to the core business of the company, or some combination of the above. This was probably part of their negotiation with the company that runs the 401(k) program.

I am not saying this is right or fair, particularly to you, but I just wanted to point out some of the things that your management probably had to face when setting up the program. If you are concerned about it I would go try to enter a discussion with them at this level and make it clear to them that a 401(k) program is something that you definitely want and would contribute to. If a majority of the associates in your company agreed to participate, that may be news to your management, and they may then re-negotiate the terms of their 401(k) program.

I always say: never attribute to malice that which can be adequately explained through ignorance.

Tiddman
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