What does a company get out of it's employees signing up for 401K?

Question

Why do companies push 401K so much? What do they get out of it? I just can't imagine them caring so much about their employees future.

Answer 1

same as what they get out of offering health insurance, paid vacation, or providing a company vehicle....it's a benefit to attract employee's.  Additionally, the owners of small companies can benefit by offering a 401k plan.  They would offer a match or even a guaranteed 3% contribution so that they are able to fully participate.  In some cases they can put away 40-50k for themselves while contributing 15-20k for their employees.  At first glance it's not equal but the total contribution of 70k would generate almost 30k in tax savings.  So instead of paying 30k to Uncle Sam they get to give 20k to their own employees and 10k they keep themselves.  Yes it's in a retirement plan but it's still theirs.

Answer 2

I believe they get some kind of a gov't kick back, tax break, etc.  I'm not completely sure.   They must get something though because at my company, employees are eligible to participate after only 6 mos.

Answer 3

Corgi has given you a good answer -

401K were started 20-30 years ago when pension plans started having problems -

most companies had pension plans - but the problem many had was that they were not fully funded - (auto co's and airlines) - so when a big slug of people retired the funds were not there to pay the pensions (that's how allot of airline workers got hurt - they came of age to retire and there was no money to pay them)

why weren't they fully funded - in some cases because - there were no laws protecting the pension funds - if the company needed cash for a capital investment - they used the pension fund and never repaid it

conversely - many companies did fully fund their pension plans and never touched the money - what happened to them was they became targets for "hostile" takeovers - other companies, seeing a huge vault of cash - would buy them and then raid the pension funds and deplete the cash - and once again - the workers got scre  d -

and finally - it just became very expensive to continue to pay into pension plans -

so the 401K was developed - and Corgi is right the reason it gets pushed is so that when the audit is done to make sure its not favoring the management or owners (they aren't using it as a place to put away untaxed money) - the owners/management want their employees to make contributions - in fact - many places that pay bonus' at year end will increase the bonus paid if an employee will contribute their bonus to the 401K

Answer 4

Many of these companies use this money as an investment in the company.  When employees pay in they have more capitol to buy or expand.

This along with tax incentives is why companies offer 401k plans.

Answer 5

In addition to some of the above answers, unless the 401k is safe harbor, they have to go through testing every year to make sure the highly compensated employees are not contributing more than the non highly comps (at a certain ratio). Companies push to increase the participation so they pass testings and because it looks good to say that 80% of your work force participates.

The company can not use your money to invest in their company. It goes directly from your paycheck to your 401k account. The company can not touch it while you are employed and can not touch any vested portion after you leave.