Page 180 - Essentials of Payroll: Management and Accounting

Benefits
Example. The Humble Pie Company matches the contributions of
its employees for the first 3 percent of pay they contribute into a 401(k)
plan. Sally Reed elects to have 8 percent of her pay contributed to the
401(k) plan each month.Her monthly rate of pay is $3,500.Accordingly,

the company deducts $280 from her pay,which is 8 percent times $3,500.
The company then adds $105 to her contribution, which is 3 percent
times $3,500. Consequently, the total contribution to her 401(k) plan is
$385, which is composed of $280 contributed by Ms. Reed and $105
contributed by the company.
• 403(b) plan. This is similar to a 401(k) plan, except that it is
designed specifically for charitable, religious, and educational
organizations that fall under the tax-exempt status of
501(c)(3) regulations. It also varies from a 401(k) plan in two
other ways: participants can only invest in mutual funds and
annuities, and contributions can exceed the limit imposed
under a 401(k) plan to the extent that participants can catch
up on contributions that were below the maximum threshold
in previous years.

• Employee stock ownership plan (ESOP). The bulk of the con-
tributions made to this type of plan are in the stock of the
employing company. The employer calculates the amount of
its contribution to the plan, based on a proportion of total
employee compensation, and uses the result to buy an equiva-
lent amount of stock and deposit it in the ESOP.When an
employee leaves the company, he or she will receive either
company stock or the cash equivalent of the stock in payment
of his or her vested interest.
• Money purchase plan. The employer must make a payment
into each employee’s account in each year that is typically
based on a percentage of total compensation paid to each par-
ticipant. The payments must be made, irrespective of compa-
ny profits (see next item).

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