Salem Corporation is considering implementing a 401k program for its employees. The program plan will include the company matching at 50% of the employees contribution up to 6% contribution. The Human Resources manager proposing this plan feels it will reduce turnover, improve morale, and provide a competitive edge when recruiting new employees. The HR manager has estimated Salem's annual contribution to be $300,000 and the savings to be $70,000 in employee turnover costs and improved performance. Management is concerned about this additional cost.
In addition, you should discuss the 401k limits and special treatment for highly compensated employees. Prepare a response (750-1,000) words documenting how, as a tax analyst, you see this program, and note any tax implications related to the program.