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Friday, January 24, 2020

401k, and the power of (profit) Sharing

Sold a house today, the last of 4 in a small 4 lot Stone Ridge - Kingston area project.  I picked up the land not so long ago.  The project had some complexities, some risk but we pulled it off.  I think a total of $2.3m of real estate total sold.  Out of nothing came something.  I'm not sure, but I think 3 of the 4 started out as a spec homes, ie, without a prearranged buyer.  Thanks Jeff Bank, though at this point I'm using a lot of my own equity.

Catskill Farms offers both a 401k matching plan and a yearly profit share plan, two benefits mostly unheard of in our industry in our area, and actually, in most business in our area.  We started ours 5 years ago on the advice of our accountant at the time and now I think we have $700k of investment and gains in our company-managed plan.  We match 100% of employees contributions up to 3% of their salary, and 50% from 3-5% of their salary.  Yearly profit shares average around $3k.  Add in holidays, bonuses, vacations, workers comp, etc... and you need to be a healthy well-run company indeed in order to implement and continue to fund these benefits.  And is there anything worse than taking back what you once offered?

These programs have enabled us to retain employees, without a doubt, and retaining employees helps you grow, or at least maintain or improve efficiency, which should offset some or all of the costs of the program.   While hard to quantify and calculate, I would agree that 1, these programs have enabled our employees to sustain and improve their family's stability, and 2, thus in turn have helped us keep these employees.  Just had a meeting the other day with a lead crew member, and his package topped out at $113,000, and included base pay, overtime, nearly 3 weeks vacation, 24/7 use of a truck I purchased for him, 401k matches, profit share, health care share.  It's a real job.  The non-salary benefits cost Catskill Farms $120k in 2019.

Another neat thing about the program is the benefit to the small business owner. My maximums are higher, my profit share is bigger.  It's a super intelligent gov't run program that works, and I think it works well because it is based on 'work'.  It's not a handout, a disability, a welfare, it's not a VA loan with high costs - all programs with good intentions that muddle through the fraud and grey areas with unclear tally of good vs harm.  The 401k program, and the related Safe Harbor program for small businesses, that are really well-designed and work just as they were intended, motivating people to save for retirement by appealing to the self-interest of a business-owner, and using the tax code for the benefit of working people.

Down in Miami Beach again.  They are getting ready for the Super Bowl.

And since this is a business blog and not a 'eat my shorts I'm in South Beach' blog, a token house picture of a fantastic home in Narrowsburg that is making good progress seems in order.

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