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Salary, Benefits & Job Offer Questions


I recently have been offered a new position that includes some benefits that I am unclear on. Can you tell me what a 401K and a cafeteria plan are and how I can maximize the usage of these benefits. For fear of looking unintelligent, I didn’t want to ask the construction employer.

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The language of benefits can become quite confusing but please remember not to feel intimidated. These benefits are created for the employee and unfortunately; some do not participate in electing such due to lack of knowledge.
First, 401K - 401(k) plans are a defined contribution plan that is a cash or deferred arrangement. Employees can elect to defer receiving a portion of their salary, which is instead contributed on their behalf, before taxes, to the 401(k) plan. Most employers will match employee contributions up to a certain percentage.
There are also special rules governing the operation of a 401(k) plan. For example, there is a dollar limit on the amount employees may elect to defer each year. The dollar limit is currently $10,500. The amount may be adjusted annually by the U.S Treasury Department to reflect changes in the cost of living.
Other limits may apply to the amount that may be contributed. For example, if highly compensated employees may be limited depending on the extent to which rank and file employees participate in the plan. Employers must advise of any limits that may apply to its employees.
Although a 401(k) plan is a retirement plan, access to funds may be permitted before retirement. For example, active employees may be allowed to borrow from the plan. Also, a plan may permit withdrawals on account of hardship, generally from funds contributed by the employee. The sponsor may want to encourage participation in the plan, but it cannot make elective deferrals a condition for the receipt of other benefits, except for matching contributions.
Second, cafeteria plans- Flexible benefit or cafeteria plans generally allow employees to choose between cash compensation and tax-exempt benefits. Under such a plan, employers may provide employees with an additional benefit package at virtually no extra cost while reducing both the employer's and the employees' tax bills.
Flex plans thus allow employers to upgrade and customize the array of benefits offered while keeping a handle on total benefit costs. Flex plans range from the most simple (that merely pay group insurance premiums with pretax dollars) to the most complex (that provide benefit credits and a choice of types and levels of benefits that may be chosen and paid for on either pre- or post tax basis).

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