A Boutique Approach to 401(k)s

A 401(k) plan is the most common type of employer-sponsored retirement plan in America primarily offered by large, for-profit businesses. As a defined contribution plan, 401(k)s are primarily funded by the employee through pre-tax contributions, but often come with at least a partial employer match. As a small-business owner, the scope of implementing and managing a 401(k) can be daunting – drafting an investment policy statement (IPS), designing a menu of investments and ensuring proper compliance are just a few considerations to mention.

Core Wealth Advisors will partner with select small-business owners to manage their 401(k) offerings to extend the boutique style of care, attention and advice our individual clients receive to plan sponsors and participants. Our custodial partner, Fidelity Investments, provides a scalable platform to optimize plan design, manage costs, and understand changing fiduciary duties with insights, resources, and reporting. This key partnership helps small-businesses and their employees achieve long-term financial health and wellness support from day one.

In order to maintain our boutique style of care our clients have come to expect, Core carefully considers who we partner with to provide 401(k) services. Simply stated, Core Wealth is not right for everyone.  The ideal business relationship may involve a small-business with low turnover who wish to maximize the tax deferral benefits of a 401(k) plan. In addition, the participants would also benefit from the additional wealth management and financial planning platforms Core Wealth offers. Whether you are the business owner or an employee participant, our goal is to work with you during and after your work life in an effort to achieve your financial goals.

Is your small-business a fit for our crafted 401(k) solution?

The Right Match

401(k)s are primarily funded by the employee through pre-tax contributions, but often come with an employer match. Typically, employers match a percentage of employee contributions up to a certain portion of total salary. The power of the employer match cannot be understated.

For our example, our sample employee is paid semi-monthly at a rate of $50,000 per year with an annual cost of living increase of 2% and contributes 6% to his/her 401(k). Of course, an employees contribution rate fluctuates based upon personal circumstances.

Scenario 1 (No Employer Match)

Over a 32-Year Career

Contributions: $132,681

Earnings: $232,060

Total Account Value at Career End of $364,741

Assumes a 6% rate of return

Scenario 2 (With Employer Match)

Over a 32-Year Career

Contributions: $132,681

Earnings: $290,075

Company Match: $33,170

Total Account Value at Career End of $455,926

Assumes a 6% rate of return

While the power of the company match does not look like much on the surface (only $33,170), the additional investment earnings on the company match over the example employees career cannot be ignored for either the employee or employer.

Employer Benefits

  • Tax Savings: Tax savings is one of the most obvious benefits of a 401(k) plan, but its power is often overlooked. Any employer match or contribution is also given from the company to employees on a pre-tax basis. Additionally, if you are establishing a 401(k) plan for the first time you may be eligible to receive tax credits.
  • Employee Turnover: Most experts believe every time a business replaces a salaried employee, the costs to the company can be as much as 2x their annual salary. Retaining employees is essential for an employer and offering a 401(k) match adds to the list of employee benefits.

This scenarios above are intended to serve as an educational tool with hypothetical data, not investment advice. The variables selected are not meant to reflect the performance of any security or current economic conditions. The examples are intended for illustrative purposes only and are not a prediction of investment results.