Deferred Compensation Plan

Costco's Deferred Compensation Plan is designed to help employees defer a portion of their compensation until a future date, typically retirement. This allows participants to reduce their taxable income during their working years and defer taxes on the deferred amounts until they receive the payouts.

Eligibility:

The Deferred Compensation Plan is generally available to certain management and highly compensated employees, though the specific eligibility criteria can vary.

Employees become eligible after a certain tenure or once they reach a specific compensation threshold. The exact eligibility and entry terms for Costco employees may be found in the details of the plan document.

Example Calculation:

Let’s assume an eligible employee chooses to defer $20,000 of their annual salary under Costco’s Deferred Compensation Plan.

If the employee is in the 35% tax bracket, deferring the $20,000 would reduce their taxable income, potentially saving them $7,000 in taxes in the current year (35% of $20,000).

If this amount is deferred and invested in a portfolio that earns an annual return of 5%, after 10 years, the employee would have:

Future Value =  20,000 × (1+0.05)10 = 20,000 × 1.62889 = 32,577.80

Thus, the deferred amount would grow to $32,577.80, which would be taxed when withdrawn during retirement at a potentially lower tax rate.

This is a simplified example, and actual results would depend on investment choices and market performance.

Please ensure that you refer to the plan's full provisions for the most accurate and detailed information.

Costco's 401(k) Retirement Savings Plan

Costco's 401(k) Retirement Savings Plan offers several features to help employees build their retirement savings effectively

Contributions:

Employee Contributions: Employees can contribute up to 50% of their compensation per pay period, in 1% increments, to the 401(k) plan.

Employer Matching: Costco may make a matching contribution equal to a percentage of your total salary deferral contributions made for the year, up to a certain amount.

 

The matching contributions formula is established annually by Costco. 

 

Discretionary Contributions: Costco may make discretionary contributions although they are not legally obligated to do so. 

 

Employees are not required to make salary deferral contributions in order to receive these discretionary contributions, however they must meet the eligibility requirements.

 

Vesting Schedule: The contributions from Costco are subject to a vesting schedule, where the ownership of employer contributions increases with the length of employment at Costco.

 

Employees are fully vested after 5 years, which means they have complete ownership of all employer contributions after this period.

 

 

Investment Options: The plan provides a variety of investment options that allow employees to tailor their investments based on personal financial goals and risk tolerance.

Example Calculation

Let’s assume an employee named John earns $50,000 annually and decides to contribute 5% of his salary to the 401(k) plan, which is $2,500 per year.

If Costco matches 50% up to 5% of his contributions, they would contribute an additional $1,250 annually to John’s 401(k) account.

Scenario:

• John’s Annual Contribution: $2,500
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• Costco’s Matching Contribution: $1,250
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• Total Annual Contribution to 401(k): $3,750
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Hypothetical Investment Growth

Assuming an average annual return of 7% from the investments within the 401(k) plan, here’s how John’s account might grow over 10 years: 

• Initial Amount: $3,750
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• Annual Return Rate: 7%
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• Period: 10 years
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Costco offers a comprehensive benefits package that encompasses competitive wages, healthcare coverage, retirement savings plans, employee stock purchase plans, and various other perks and support programs.

Here’s an in-depth look at how these benefits work, who is eligible, and when eligibility starts:

Eligibility and Availability

Healthcare Coverage:

Part-time employees who have worked for at least 180 consecutive days and average more than 23 hours per week are eligible for Costco's health benefits plan. This includes medical, dental, and vision coverage.

Full-time employees receive more substantial contributions toward their healthcare premiums compared to part-time workers.

Retirement Savings Plans (401(k)):

Costco offers a 401(k) plan where employees can contribute a portion of their income pre-tax towards retirement savings.
The company provides generous matching contributions, enhancing the employees’ savings for retirement.

Employee Stock Purchase Plan (ESPP):

Employees can purchase Costco stock at a discounted price, which fosters a sense of ownership and participation in the company's success.

Paid Time Off (PTO):

Employees start accruing paid time off after 90 days of employment.

The accrual rate increases with the length of service, rewarding long-term employees.

Educational Assistance:

Costco supports its employees' educational aspirations through tuition reimbursement for higher education or professional development courses.

Direct Stock Purchase and Dividend Reinvestment Plan

Costco’s Direct Stock Purchase and Dividend Reinvestment Plan allows employees to directly purchase Costco stock and reinvest dividends.

This plan is administered by Computershare, and it is designed for long-term investors who want to build their Costco stock ownership over time.

Direct Stock Purchase:

Investors can purchase Costco shares without needing a brokerage account.

The minimum initial investment for non-shareholders is $250, but alternatively, participants can authorize monthly automatic deductions of at least $25 to fund the investment.

Investors can also make subsequent purchases with a minimum of $25 per transaction.

The plan allows for purchasing fractional shares based on the dollar amount of the investment.

Dividend Reinvestment:

Shareholders can choose to reinvest dividends into additional shares of Costco stock automatically. This reinvestment can be full or partial, depending on the number of shares owned.

Investors with fewer than 100 shares have their transaction fee paid by Costco but pay $0.03 per share purchased.

If they own more than 100 shares, they pay a transaction fee of 5% of the amount reinvested (up to $3), plus $0.03 per share.

HSA Overview

Costco’s HSA allows eligible employees to set aside pre-tax dollars to pay for qualified medical expenses, thereby reducing their taxable income. Contributions to the HSA can be made by both the employee and Costco.

Eligibility:

Employees are eligible for the HSA if they are enrolled in a High Deductible Health Plan (HDHP) offered by Costco. This is typically available to both full-time and part-time employees who meet certain working hour requirements.

Contributions:

1. Employee Contribution: Employees can decide how much to contribute to their HSA each pay period, up to the IRS maximum limit.
2. Employer Contribution: Costco also contributes to the HSAs of eligible employees, further increasing the funds available for healthcare expenses.

Example Calculation:

Let’s assume an employee elects to contribute $1,500 to their HSA for the year, and Costco contributes an additional $500.

• Total HSA Contribution for the Year: $1,500 (employee) + $500 (Costco) = $2,000
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Usage:

Funds from the HSA can be used to pay for or reimburse qualified medical expenses such as doctor’s visits, prescription medications, and other health-related expenses not covered by insurance.

Tax Benefits:

Contributions are made pre-tax, and the account balance grows tax-free. Withdrawals for qualified medical expenses are also tax-free, providing a triple tax advantage.