An executive overview of the 401 (k) plans

In the United States, the 401(k) scheme is one of the most common employer-sponsored retirement programs. A vast percentage of employees depend on the funds invested from 401 (k) accounts to fund their retirement. Simultaneously, companies use the scheme to assign business stock to their workers. A 401 (k) plan is an agreement that allows an individual to choose between accepting cash as pay or directing a portion of it to a 401 (k) account established by the plan (Smith, 2013). Usually, the deferred amount is not taxable until the time it is distributed to the owner from the plan.
Background Information
In 1978, the Revenue Act of 1978 was passed by the congress which included a provision of section 401 (k) which provided employees with a tax-free method in which they can differ their compensation from stock options of bonuses. The plan was put to effect on 1st January 1980. A benefits consultant at the Johnson companies found the law as an opportunity for creating a tax advantaged savings plan for employees. In 1981, some rules were issued by the IRS that allowed employees to their plans for 401 (k) through salary deductions which resulted to spread of the 401 (k) plans coming the early 1980s. In 1983 about 50% of the large firms considered to offer a 401 (k) plan to their employees (Butler, 2012). 
Most companies preferred this plan given that it was cheaper and mostly predictable in funding than pensions. On the other hand, the employees were attracted to the new savings plan that would put them at a better position after retirement. In 1996, the amount of assets in 401 (k) plans was more than $1 trillion with the number of active participants totaling to 30 million. Coming the year 2001, the Tax Relief and Economic Growth Reconciliation Act lead to various changes to the 401 (k) plans (Smith, 2013). As a result of the new law, the amount contributed by companies and individuals to their respective accounts increased. Presently, 401 (k) plans accounts for more than $4.8 trillion.
Implications for Employers, Employees and Other Stakeholders
The 401 (k) plans enables both the employee and the employer to save for retirements the pre-tax money where individuals can let their money grow until the time they need it. A well-structured 401 (k) plan increases the employee’s retention and moral. Irrespective of these benefits, about 70% of small businesses do not offer 401 (k) plans to their employees. Another thing, the saver’s credit that come along with the plan encourages the employees to plan for their retirement better than they would do with the other plans. The other implication with the plan is that it helps employers to retain their workers for a longer period and hence minimize the rate of turnover. This leads to a business having experienced and well-trained employees contributing to a higher level of productivity (Munnell & Sunden, 2014). In terms of the other stakeholders such as suppliers and lenders, they also benefit from the plan various ways. For instance, as the level of risk reduces towards a business as a result of the plan, lenders increase their trust over the company and hence, offer the required services with less uncertainty. As a result, the lenders benefit by offering more credit which adds to their level of assets.
Irrespective of the benefits, problems are associated with the plans. Starting with employees, most of them may find that the differing tax through the 401 (k) plans is a bad idea in case of increased tax rates. At the same time, a large number of investors may be frustrated by their inability to make maximum use of their savings without incurring the cost of hefty penalty. Another thing, participants are restricted on level of yearly savings that is allowed under the plan. In case the employee become disabled or is forced to stop working, they plan automatically stops (Munnell & Sunden, 2014).
Recommended Resolutions
First, those responsible for formulating and implementing the law should consider the interests of their employees as much as they try to benefit from the plan. This can be done by allowing employees to participate in the law resolution activities. Before then, employees should be allowed of offer their ideas, comments and complaints concerning the plan. Another thing, employees should be offered with sufficient knowledge and information concerning the plan before they enroll to it. As above explained, most of these employees are only aware of the positive side but while knowing anything concerning the negative face of the plan. It is important for the employees to have a clear understanding of the plan as they participate in it. Given that most of them purely rely on the plan for their retirement years. It is important for them to understand it so that they are not misled.












References
Butler, S. J. (2012). The decision-makers guide to 401(k) plans: How to set up cost-effective
plans in companies of all sizes. San Francisco: Berrett-Koehler.
Munnell, A. H., & Sunden, A. E. (2014). Coming up short: The challenge of 401(k) plans.
Washington, D.C: Brookings Institution Press.
Smith, M. X. (2013). Managing your firm's 401(k) plan: A complete roadmap to managing
today's retirement plans. Hoboken, N.J: Wiley.