Ways of Emphasizing the Benefits of 401k Retirement Plans, Essay Example

The most important benefit of 401k retirement plans comes in the form of time value of money. Time value in this case refers to the scenario whereby a small amount of money is compounded over long periods in order to result in thousands, probably millions of dollars. In order for the new NL&C employees to understand this basic concept during orientation, I would have to encourage them first to think like good and effective financial planners, mainly through discussions.

I would also recommend that they open tax-advantaged accounts in order for them to learn more and more about the benefits of 401k retirement benefit plans as time goes. I would emphasize the definition of the term ‘401k retirement plan’ and explain every technical term used in this definition. 401k retirement plan simply refers to a special type of tax-exempted account. I would explain that this account is often funded specifically through payroll deductions that are exempted from tax. As a retirement plan, it would be helpful to mention the number of ways through which the funds generated in this way are invested. In this case, I would mention and explain such terms as mutual funds, stocks, bonds, and other assets.

Having explained the 401k retirement plan, I would invite questions. I would expect one of the questions to be about the manner in which compensation is made. In this case, I would clearly explain that the most important concept of a 401k retirement plan is that no taxation is imposed on ones dividends, capital gains or interests. I would use the questions to initiate lively debates about the main benefit of the plan: tax exemption. Other benefits to include in the discussion are employer match programs, portability of the plan and loan withdrawals.

References

Muir, D. (2002). The dichotomy between investment advice and investment education: Is no advice really the best advice? Berkeley Journal of employment and labor law 23 (1) p. 2-24.

Gale, W. et al, (2005). The Automatic 401(k): A Simple Way to Strengthen Retirement Saving. Oxford: Oxford University Press.