The following presentation presented by:
Hector A. May
Executive Compensation Planners, Inc.
20 Squadron Blvd
Suite 600
New City, NY 10956
A Financial Planning & Benefits Advisory Firm
Tel: (845) 638-2525
Fax: (845) 638-2713
Maximizing the Perceived Value
of your
Company’s 401(k) Plan
The Case Study included in the presentation
contains data that is hypothetical in nature.
It should take about six minutes to review.
You will have several opportunities to review supplemental
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A 401(k) plan is one of the most powerful employee benefit
arrangements that exists.
Any firm that offers this plan is likely to have a more
productive and loyal employee group.
Unfortunately, too often participants have only a limited
knowledge of the long-range financial horsepower of their
accounts.
Most employees can answer the following five “today” questions
with a high degree of accuracy:
1. What is the approximate value of your 401(k) account?
2. How much are you contributing each month?
3. Does the company match any of your contributions?
4. If so, how much is the match?
5. How is your account invested?
On the other hand, most employees cannot answer these next five
“tomorrow” questions with any degree of confidence:
6. What average annual yield do you expect?
7. What age do you reasonably expect to retire?
8. What will your account be worth at retirement?
9. How much will your account provide in retirement income?
10. How long will that income last?
Clearly, employees are attracted to the deductibility of their 401(k)
contributions and the resulting tax free treatment of any growth.
A long-range problem occurs because no one is consistently
helping them with answers to the tough “tomorrow” questions:
6. What average annual yield do you expect?
7. What age do you reasonably expect to retire?
8. What will your account be worth at retirement?
9. How much will your account provide in retirement income?
10. How long will that income last?
In addition, most employees are unaware of the extent of the
financial firepower created by an employer’s matching contributions.
For example, assume an employee, age 45, decides to allocate
$5,000 to the company’s 401(k) plan.
Assume the company matches at a 50% rate, i.e., for every dollar
allocated by the employee, the company contributes 50 cents.
$370,672
Assuming a yield of 8%, by age 65, the 401(k)
account will have grown to $370,672.
Alternatively, the employee could skip the 401(k), pay taxes on the
$5,000 (let’s assume a combined federal and state levy of 30%), and
invest the resulting $3,500 on a do-it-yourself basis.
Assuming the same 8% yield (except this is a taxable yield), the
employee could build a do-it-yourself account of $130,251 by age 65.
That’s a 285% difference in favor of the 401(k) plan.
401(k) Plan
$370,672
Click below to review the
pre-retirement numbers.
401(k)
Do-It-Yourself
Do-It-Yourself
$130,251
At Retirement . . .
With a continuing 8% yield and depleting the funds over 20 retirement
years, the $370,672 in the 401(k) could produce annual taxable cash
flow of $34,957 (generating annual after tax cash flow of $24,470.)
With a continuing 8% yield and depleting the funds over 20 retirement
years, the $130,251 in do-it-yourself could produce annual after tax
cash flow of $10,407, only 42.5% of the 401(k)’s after tax results.
Click below to review the
retirement numbers.
401(k)
Do-It-Yourself
There are very few of your employees who can accurately
calculate these comparative values.
Click here
to see the comparative results if the
do-it-yourself account is invested in equities.
6% Growth; 2% Dividend; 50% Portfolio Turnover.
Capital Gains: 50% short term; 50% long-term.
Click here
to continue with the presentation . . .
There is a way to find out about the “tomorrow” knowledge of
your employees . . .
Click here
to review a Survey that will help you determine
the perceived value of the long-range benefits of your 401(k) plan
by your participating employees.
We stand ready to provide information -- directly or through you -to those employees who return the Survey with Question #11
answered “Yes”:
11. Do you want information regarding the
questions you couldn’t answer?
Benefits of the Survey
 Because the analysis makes your employees better informed,
their perception of your 401(k) plan increases significantly.
 Because of the analysis, your employees will be better
prepared for retirement.
 Because of the analysis, your employees will likely be
inclined to participate at a higher level of contribution.
 Because the analysis tends to increase employee
participation, your highly compensated executives (“HCEs”)
will typically be able to increase their level of participation.
Our Participation
There are two ways we can help:
1. Follow-up with Survey respondents and integrate the results of
the 401(k) plan into their overall retirement planning strategy.
2. Serve as your back office relative to the calculation of the
answers requested by Survey respondents, and provide you
with the information to deliver to your employees.
Our compensation arrangements for either service are
available on request.
The yield and tax bracket assumptions used in this presentation are
hypothetical in nature and should not be considered representative
of any particular investment product or strategy.
Click here
to end this presentation.
Click here
to start from the beginning.
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