KSOP

A KSOP is a qualified retirement plan that combines an employee's stock ownership plan (ESOP) with a 401(k). Under this type of retirement plan, the company will match employee contributions with stock rather than cash. KSOPs can benefit companies by reducing expenses that would arise by separately operating an ESOP and 401(k) retirement plans.

A KSOP is a great option for companies that can help them create a market for their shares with sufficient liquidity. In addition, KSOPs also provide added motivation to employees to ensure the profitability of the company. In turn, this could boost share price and generate additional value for the employees and firm.

In contrast, if company shares are not performing well, the cycle could become vicious, with employees losing value as share price declines, leaving less incentive to outperform.

In contrast with traditional 401(k) retirement plans, KSOPs bring an added level of risk to employee portfolios. In a traditional 401(k), employees are generally offered several options of funds with various risk and reward profiles in which to invest. As employers gradually add to an employee’s 401(k), the employee has more money to distribute among these funds and diversify their assets. Within any particular fund there are usually a variety of stocks, as well as bonds, and sometimes money market instruments and cash. A KSOP concentrates employee assets in company stock, leaving less room for balance and spreading risk among different shares of stock and asset classes.

In addition to the KSOP, there are additional forms of employer-sponsored retirement plans, including the SEP IRA and SIMPLE IRA. A SEP IRA is available for self-employed individuals, such as freelance writers, consultants, independent contractors, along with sole proprietorships and/or partnerships. SEP IRA participants may make tax-deductible contributions on behalf of eligible employees – including the business owner, and the employer is allowed to claim a tax deduction for any plan contributions that are not over the statutory limit. Annual contributions are optional; however, if an employer does contribute, she or he must contribute the same percentage to all eligible employees, up to the contribution limit.

In contrast, a SIMPLE IRA is often appropriate for slightly larger organizations. Small businesses with 100 or fewer employees are eligible. "SIMPLE" stands for “Savings Incentive Match Plan for Employees.” Employers that establish a SIMPLE plan may make a mandatory 2% retirement account contribution to all employees or an optional matching contribution of up to 3%. In turn, employees can contribute a maximum of $12,500 annually in 2018.