Category: 401(k) Plan Information

6 Reasons to Offer Automatic Enrollment in Your 401(k) Plan

Siân Killingsworth / 24 May 2023 / 401(k) Plan Information, Personal Finance

To help your small business employees save for their futures, consider adding automatic enrollment to your 401(k) plan. This is an effective method of encouraging them to save. This is a strategy worth considering for a variety of reasons. Not only does it motivate employees to save for retirement, but it also is advantageous to your small business. Here are six reasons why offering automatic enrollment is advantageous:

1. Compliance with Future Requirements

Automatic enrollment is expected to become a mandatory feature in most plans starting in 2025. Implement automatic enrollment now. This will put you ahead of the curve. Ensure that your small business is prepared to meet future regulatory requirements. It demonstrates your commitment to compliance and positions your business favorably.

2. Tax Savings Opportunities

When you incorporate automatic enrollment into your small business 401(k) plan, you may qualify for tax savings of up to $500 per year for the first three years of offering it. These savings can help offset plan costs and provide financial relief for your business.

3. Increased Plan Participation

Remove the decision-making burden from your employees. Make it easy for them to save for retirement with automatic enrollment. This will significantly increase plan participation rates. Studies have shown that streamlining your 401(k) plan with features like automatic enrollment can lead to participation rates surpassing 90%. This high level of engagement ensures more of your employees are actively saving for their retirement.

4. Improved Retirement Savings

By automatically enrolling employees in the plan and setting a default contribution rate, you create a pathway for improved retirement savings. This effortless enrollment approach increases the likelihood that employees will save for retirement. In fact, research indicates that employees who are automatically enrolled in a plan tend to contribute at higher rates compared to those who enroll voluntarily.

5. Attracting and Retaining Top Talent

Offering a retirement plan with automatic enrollment sends a strong message to your employees that you genuinely care about their financial future. This becomes a compelling selling point when attracting new talent and retaining your current workforce. Retirement benefits are becoming more important than just salary. Automatic enrollment sets your business apart and makes it easier for employees to save for the future. This will help you attract and retain existing and potential employees.

6. Streamlined Administration

By automatically enrolling employees, you reduce the need for extensive efforts to encourage participation in your small business’s 401(k) plan. Additionally, setting a default contribution rate simplifies plan administration, reducing administrative burden and freeing up time for other essential tasks.

Embrace automatic enrollment to help your employees save for retirement. This will also improve the competitiveness, compliance, and administrative efficiency of your small business. It’s a proactive approach that benefits both your employees and your business’s long-term success.

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

The Benefits of Offering a Customizable 401(k) Plan

Siân Killingsworth / 24 May 2023 / 401(k) Plan Information, Small Business 401k

So you’ve decided to start a 401(k) for your small business – now what? We know it can seem daunting to implement this new savings vehicle, and one of the biggest challenges small business owners face is deciding the right investments to offer your employees.

While traditional 401(k) plans typically offer plenty of investment options, there is a growing trend of small businesses offering customized investment options as part of their 401(k) plans.

The Traditional 401(k) Plan

Traditional 401(k) plans are designed to meet the needs of a typical employee, and while they do offer some customization, they aren’t fully customizable. This approach keeps savers within certain guardrails and their investments at less risk than a plan with fewer restrictions.

This also means all employees are offered the same investment options, regardless of their needs and goals. Some employees and employers may prefer to have all options open to them so they can customize and control their investments with greater detail and specificity.

The Benefits of Offering a Customized Investment Strategy

Personalization

Offering a customized investment strategy allows your employees to personalize their investments to match their financial needs and goals.

Improved Investment Outcomes

Customized investment strategies can lead to improved investment outcomes for your employees. By tailoring investments to match their goals, you could be helping your employees be more likely to achieve their desired investment outcomes.

Increased Employee Engagement

Offering a customized investment strategy can also increase employee engagement in your small business’s 401(k) plan. Employees who have the opportunity to tailor their investments to their specific goals, interests, and needs are more likely to take an active interest in their plan and monitor their investments regularly.

Competitive Advantage

Offering a customized investment strategy can also give your small business a competitive advantage when it comes to attracting and retaining top talent. Employees are increasingly looking for comprehensive benefits packages. Offering customized investment strategies can be a powerful way to make your business stand out from competitors.

How to Implement a Customized Investment Strategy

Work with a Professional

Implementing a customized investment strategy requires the expertise of a financial advisor or knowledgable provider. Small business owners should work with someone who has experience in small business 401(k) plan implementation and administration.

Look for a professional who can help you develop an investment strategy that meets the needs of your employees. (This will also help you stay in compliance with federal regulations.)

Use Target-Date Funds

These handy funds automatically adjust their asset allocation as an employee approaches retirement, based on their expected retirement date. This allows your employees to invest in a diversified portfolio that matches their risk tolerance and time horizon.

Offer Managed Accounts

Another option is to offer managed accounts and professionally managed portfolios tailored to an employee’s individual needs and goals. This option can be more expensive than other investment options, but it can also lead to better investment outcomes for employees.

You may also want to consider offering a Roth 401(k) for your employees. This retirement option allows employees to save for retirement with after-tax dollars and all future distributions are tax-free. This allows employees to save more money for retirement and can be beneficial for those who anticipate their tax rate to be higher in the future.

Additionally, you can offer employees the option to invest in mutual funds or exchange-traded funds (ETFs). These investment vehicles allow employees to diversify their portfolio, potentially leading to better long-term investment outcomes.

Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

Why Offer a Roth 401(k) Option to Your Small Business Employees

Siân Killingsworth / 24 May 2023 / 401(k) Plan Information

If you’re a small business owner, you know that offering a retirement savings plan is an important benefit for your small business’s employees. However, choosing the right retirement plan can be challenging. One option that you may want to consider offering is a Roth 401(k).

What is a Roth 401(k)?

Glad you asked. It is a retirement plan that combines the features of a traditional 401(k) with those of a Roth IRA.

You and your employees can contribute pre-tax dollars like a traditional 401(k), but with a Roth 401(k), they can also contribute after-tax dollars. The after-tax dollars grow tax-free and can be withdrawn tax-free in retirement.

Benefits of Offering a Roth 401(k) to Your Small Business’s Employees

Tax-Free Retirement Income

One of the most significant benefits of offering a Roth 401(k) is the tax-free retirement income it provides. Unlike a traditional small business 401(k), where contributions are tax-deferred, employees contribute after-tax dollars to a Roth 401(k). As a result, the money grows tax-free, and when your employees withdraw funds in retirement, they won’t have to pay taxes on those withdrawals. This can be a significant benefit for individuals who expect to be in a higher tax bracket in retirement.

Diversification of Retirement Income

By contributing to both a traditional 401(k) and a Roth 401(k), your employees can create a retirement income stream that includes both tax-deferred and tax-free income.

No Required Minimum Distributions

With a traditional 401(k), employees must start taking required minimum distributions (RMDs) at age 72–but with a Roth 401(k), RMDs aren’t required. This means that your employees can leave their money in the account to continue to grow tax-free for as long as they like.

Employer Matching Contributions

As a small business owner, you may also be able to offer matching contributions to your employees who contribute to a Roth 401(k). Matching contributions can help incentivize your employees to save for retirement and can also help to reduce your tax liability as an employer.

Attract and Retain Top Talent

Offering a competitive retirement package can help you attract and retain top talent. Retirement benefits are becoming increasingly important to employees. You can set yourself apart from other small businesses by offering comprehensive benefits that allow participants to have more control over their retirements.

Easy to Implement and Maintain

Finally, a Roth 401(k) can be easy to implement and maintain. Most retirement plan providers offer Roth 401(k) options, and the administrative costs are typically low. Another benefit: Because employees contribute after-tax dollars, there are no additional tax reporting requirements for you.

Ubiquity is not a registered investment advisor and no portion of the material herein should be construed as legal or tax advice. Please consult with your financial planner, attorney and/or tax advisor for advice.

5 Reasons to Offer Automatic Enrollment to Your 401(k) Plan

Siân Killingsworth / 10 May 2023 / 401(k) Plan Information, Small Business 401k

If you’re looking for ways to encourage your small business employees to save for their futures, we have two words for you: Automatic enrollment. Not only is this a great way to encourage your employees to save for retirement, it also has benefits for your small business. (Talk about a win-win.)

What is Automatic Enrollment?

We’re glad you asked! Automatic enrollment is a feature that lets employers (you) automatically enroll their employees in a 401(k) plan. (What’s in a name?)

This means unless they choose to opt out, your employees are enrolled in your small business’s 401(k) plan without anyone having to lift a finger. Their contribution is deducted from their paycheck automatically, typically at a set percentage.

Benefits of Offering Automatic Enrollment

Auto-enrollment is great for several reasons. But first of all, it is a plan feature that will be required in most plans starting in 2025. Why not get ahead of the curve now?

1. Tax Savings

When you add automatic enrollment to your small business 401(k) plan, you may qualify for up to $500 per year for the first three years you offer it. That can help offset plan costs.

2 Increased Plan Participation

Automatic enrollment takes the decision-making process out of your employees’ hands and makes it easy for them to start saving for retirement. Some studies have shown that when you streamline your 401(k) plan, you can increase participation rates to over 90%.

This means that unless they specifically choose to opt out, all of your employees who are eligible to participate in the 401(k) plan will be automatically enrolled in the plan. This is a great way to motivate your employees to save for retirement.

Additionally, it can benefit your small business. This eliminates the need for anyone to manually sign up each employee, making the process much simpler and more efficient. Especially when you add time-saving features like automatic enrollment.

This means that unless any of your employees choose to opt out, they will automatically be enrolled in your small business’s 401(k) retirement plan without any additional action being taken. The employees will not need to complete any forms or provide any additional information in order to be enrolled in the plan.

3. Improved Retirement Savings

By enrolling employees in a plan and setting a default contribution rate, they’re more likely to save for retirement. Yes, it’s that easy. In fact, studies have shown that employees who are automatically enrolled in a plan contribute at higher rates than those who enroll on their own.

4. Attract and Retain Top Talent

By offering a retirement plan with automatic enrollment, you are showing your employees that you care about their financial future. This can be a great selling point when attracting new employees and retaining your current staff.

Besides, offering a retirement plan at all is the bare minimum these days when it comes to benefits beyond salary. Adding automatic enrollment is a nice little extra that makes saving for the future that much easier for your current and potential employees.

5. Easy Administration

By enrolling employees automatically, you won’t have to spend as much time encouraging employees to enroll in your small business’s 401(k) plan. You can also set a default contribution rate, which makes the plan even easier to administer.

5 Tips for Establishing an Efficient and Affordable 401(k) Plan for Your Small Business

Siân Killingsworth / 9 May 2023 / 401(k) Plan Information, Safe Harbor, Small Business 401k

Setting up a small business retirement plan can seem like a daunting task, but with the right guidance, it can be done efficiently and affordably. These five steps can help you establish a 401(k) plan for your small business as quickly and easily as possible (because we know you don’t have time to waste).

Step 1: Choose a Plan Provider

The first step in establishing a small business retirement plan is to choose a plan provider. We suggest working with a low-fee, transparent 401(k) provider (like Ubiquity!) to help you find the plan that’s right for your small business and your employees’ needs – especially one that charges only flat fees. This type of fee remains steady over time so you can accurately predict plan costs. Many providers charge a percentage, or assets under management (AUM) fee, which fluctuates as your balance changes. Over time, the percentage fees can erode your savings significantly.

Learn more about flat fees versus percentage fees here.

Step 2: Determine an Appropriate Plan Type

The first step in setting up a 401(k) plan for your small business is making sure the plan meets your company’s unique needs. There are several plan types to consider when picking a 401(k) plan for your small business, including:

• Solo 401(k): A solo 401(k) plan is designed for small business owners who have no employees other than their spouse. With a solo 401(k), small business owners can make contributions as both an employer and an employee.
• Traditional 401(k): Business owners, including those who are self-employed, can start a 401(k) plan for themselves and their employees, if applicable. A 401(k) plan enables businesses to meet retirement planning and saving goals while taking advantage of business and personal tax benefits. With a Ubiquity 401(k) plan, retirement contributions can be either pre- or post-tax (Roth), with funds being deposited directly from an employee’s paycheck each pay period. Many companies also match a part of their employees’ contributions.
• Roth 401(k): A hybrid between a Roth IRA and a 401(k) plan, earnings on after-tax contributions grow tax-free. However, the contribution limits in a Roth 401(k) are significantly higher than a Roth IRA — $22,500 ($30,000 if age 50 or older) in 2023, compared to $6,500 for a Roth IRA (plus an additional $1,000 if age 50 or older).
• Safe Harbor 401(k): A Safe Harbor provision is added to 401(k) plan to make it easy to avoid some of the IRS tests that traditional 401(k) plans are subject to. Safe Harbor 401(k)s are exempt from nondiscrimination testing, significantly reducing your administrative burden. Just remember that with a Safe Harbor plan, employers are required to contribute to the plan by matching a portion of their employees’ contributions or by making a fixed contribution each year.
• New Comparability 401(k): If you want to reward or particularly motivate certain employees, a New Comparability provision can be added to a traditional 401(k) plan. It enables customized retirement plan contributions for different groups of employees. This allows you to reward select groups with higher contributions while still offering healthy employer contributions to others. Known as a qualified defined contribution plan, the profit-sharing formula works by projecting out an employee’s current contribution to a future retirement-age benefit.

Step 3: Set Up Your Plan

After you’ve chosen a provider, it’s time to set up your plan. Work with your chosen provider to get all the provisions set up and all information uploaded properly. Make sure you have the information you’ll need, including:

• Employee information such as dates of employment and birth, email addresses, SSNs, etc.
• Select plan features and provisions, such as eligibility, contributions limits, and vesting schedules.
• Decide who will be the company’s primary contact, This could be the company owner, the human resources representative, or another trustee.

Step 4: Educate Your Employees

Your employees are more likely to participate in your plan if they understand the benefits! We recommend holding informational meetings to explain the plan’s features and benefits, then providing additional resources to help your employees make informed investment decisions.

Step 5: Manage and Monitor Your Plan

A 401(k) plan for your small business isn’t a set-it-and-forget-it type of thing. You’ll need to submit your employee and employer contributions on time every time. Integrating your plan with your payroll provider is a great way to streamline this process.

It’s important to review your plan’s fees and investment options periodically and make changes annually or as your business, headcount, or finances change.

The Impact of 401(k) Plans on Your Small Business’s Future

Robby Forsythe / 9 May 2023 / 401(k) Plan Information, Small Business 401k

CEO. Human resources manager. Marketing lead. As a small business owner, you wear many hats. One you may not have considered is the role of retirement plan administrator.

However, as your business grows, offering a 401(k) plan stops being a nice-to-have and starts becoming essential to taking your business to the next level.

Benefits of Offering a 401(k) Plan

Attracting and retaining employees

In today’s job market, employees are looking for benefits beyond just salary. A 401(k) plan can help to set your business apart from the competition and show that you value your employees’ long-term financial security.

Impact: Tax benefits

1. Tax deductions

Small business owners who offer their employees a 401(k) plan may be eligible for a few different types of tax deductions:

• Employer contributions you make to your employees are tax-deductible
• When you open a new plan, you can qualify for up to $5,000 per year for the first three years¹
• Qualify for another $500 per year for those same three years when you add automatic enrollment

2. Tax deferral

Small business owners as well as employees can take advantage of contributions are made on a pre-tax basis. This means they are deducted from your taxable income for the year, which can lower tax liability and increase take-home pay.

Taxes on contributions are not due until the funds are withdrawn from the plan.

3. Tax-free growth

401(k) plan funds grow tax-free until they are withdrawn in retirement. This means that any investment gains or dividends earned on the funds are not subject to income tax, which can help the funds in the account to grow more quickly over time.

Impact: Increased retirement savings

Perhaps the most obvious benefit of a small business 401(k) plan is the ability for employees to save for retirement. The pre-tax and potential matching contributions can help employees save more for retirement than they might be able to on their own.

Don’t forget that as a small business owner, you are also an employee. You can make contributions to your own 401(k) account as both – meaning you can put away up to a maximum of $66,000 in 2023 (or up to $73,500 if you’re age 50 or older).

This is a significant advantage the 401(k) offers over other retirement plans such as an IRA, which offers very limited savings maximums.

What to Look For in a 401(k) Plan

Plan design

You’ll want to evaluate many components of the plan, including how you’ll be able to set up:

• Matching contributions
• Eligibility requirements
• Investment options

And more. This can be a lot to think about, so It’s important to work with a qualified plan specialist to select a plan that meets your business’s and your employees’ needs.

Plan administration

401(k) plans also require ongoing administration, including compliance testing and recordkeeping. This can be a complex and time-consuming process, so many businesses choose to work with a third-party administrator like Ubiquity to handle these tasks.

Fiduciary responsibilities

The plan sponsor also has fiduciary responsibilities to ensure that the plan is operated in the participants’ best interests. This includes selecting and monitoring plan investments, ensuring that fees are reasonable, and providing disclosures to plan participants in a timely manner.

It’s a good idea to choose a provider that offers low fees and transparent pricing to ensure you get the most from your money, too. For help in choosing the right provider, check out our article about that.

1 Eligible employers can receive a tax credit of up to $5,000 over three years for starting a 401(k) plan, subject to IRS requirements. Employers with 50 or fewer employees qualify for a 100% tax credit, while those with 100-50 employees can receive a 50% tax credit. Additional eligibility criteria include having at least one non-highly compensated employee, an employee who received at least $5,000 in compensation in the preceding year and having substantially the same employees receiving contributions or benefits from another plan sponsored by the employer, a member of a controlled group, or a predecessor within the three tax years prior to becoming eligible. Employers with automatic enrollment plans can receive an extra tax credit of $500 per year for a three-year taxable period.

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.

Why You Should Regularly Review Your Small Business 401(k)

Siân Killingsworth / 9 May 2023 / 401(k) Plan Information

As a small business owner, you have a lot of responsibilities – and if your business has a 401(k) plan, one of them is managing your employees’ retirement plans. Another responsibility you have? Regularly reviewing and updating your 401(k) plan to ensure it meets your employees’ needs and while remaining compliant with regulations. Here’s why reviewing your 401(k) plan is so important:

Ensuring Plan Compliance

It’s crucial to keep up with changing laws and regulations and ensure that your 401(k) plan is compliant. Employers must:

• Deposit employee contributions on time
• Stay within contribution limits
• Refrain from discrimination in favor of highly compensated employees
• Maintain accurate plan documentation
• Stay abreast of new legislation that affects plan provisions like automatic enrollment and updated contribution limits

Employers who do not deposit employee contributions promptly may be subject to IRS and Department of Labor (DOL) penalties. Employers that file a Form 5500 Annual Return/Report of Employee Benefit Plan, must report whether they made any late deposits during the year.

Meeting the Needs of Your Employees

As your small business’s needs, and those of your employees, evolve, your plan may need to be adjusted to offer more benefits or investment options. The flexible features of a 401(k) can accommodate the needs of a broad range of retirement planning objectives.

Each plan participant can choose how much of their salary will be contributed into their 401(k) account each pay period as well as how that money gets invested.

Staying Competitive

Having a competitive retirement plan can help attract and retain talented employees. Regularly reviewing and updating your 401(k) plan can help ensure that it remains competitive with other companies in your industry and beyond.

Fiduciary Responsibility

Regularly reviewing and updating your 401(k) plan can help fulfill your fiduciary responsibility as the plan sponsor – and protect you from potential lawsuits.

Federal regulations are designed to protect the interests of plan participants. They do this by establishing fiduciary responsibilities for plan administrators and trustees. Regulations also ensure that plans are properly funded. Furthermore, they provide transparency with reporting and disclosures.

How Often Should You Review Your 401(k) Plan?

We suggest reviewing your plan at least once a year. However, if there are significant changes in your business, the economy, or the regulations governing retirement plans, you may need to review your plan more frequently.

What Should You Review in Your 401(k) Plan?

Pay close attention to:

• Plan Documents and Compliance: Ensure your plan documents are up to date and compliant with current laws and regulations.
• Fees and Expenses: Check your plan’s fees and expenses to make sure they’re priced competitively with other plans in your industry.
• Investment Options: Ask yourself if the investment options you are offering your employees performing well and meeting their needs.
• Employee Participation and Contribution Rates: Check to see your employees’ participation and contribution rates. Consider ways to increase participation and contribution rates. (We have some tips for that.)

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice. 

What to Consider When Offering a Self-Directed Brokerage 401(k)

Jay Jacob / 1 May 2023 / 401(k) Plan Information

When it comes to small business retirement savings, a 401(k) plan is one of the most popular options for employers to offer their employees. You may prefer a small business 401(k) over an IRA because the savings opportunities are so much better. But have you ever thought about offering a self-directed 401(k)? Before you sign any contracts, be sure you consider these pros and cons.

What is a Self-Directed Brokerage 401(k)?

It is a retirement savings plan that allows more flexibility with investing. Participants can choose and manage their own investments within the plan, but are still limited to the pool of general equities and bonds.

What Are the Contribution Limits?

As of 2023, the contribution limits for a self-directed 401(k) plan are the same as a traditional 401(k) plan: $22,500 for those under age 50 and $30,000 for those age 50 and older.

Benefits of Offering a Self-Directed 401(k) Plan

Flexibility: This type of retirement plan lets your employees invest in a wider range of assets than a traditional 401(k) plan. This gives them the flexibility to invest in assets they are more knowledgeable about and comfortable with.

Control: Employees have more control over their retirement savings with a self-directed account. They can make investment decisions based on their own research and risk tolerance, rather than relying on the plan’s default investment options.

Tax Benefits: This type of plan is similar in many ways to a traditional 401(k) plan. A self-directed brokerage 401(k) offers tax benefits to both the employer and employee. Any contributions you make are tax-deductible, and since your employee’s contributions are still made with pre-tax dollars, which helps reduce their taxable income — just like a traditional plan.

Challenges of Offering a Self-Directed 401(k) Plan

Risk: Of course, any investment inherently carries risk, but with a self-directed brokerage 401(k), employees take on the risk of managing their own investments. If they make poor investment decisions, they could lose money, especially if they aren’t experienced managing an investment portfolio.

Complexity: It can be more complex to administer than a traditional 401(k). Because of the time and organization required, you may even need to hire staff or consultants to help manage the plan.

Liability: Opting for a self-directed brokerage account 401(k) plan may also open you up to the possibility of additional liability. If an employee makes a bad investment and suffers losses, they might blame you for offering the plan.

Costs: Be on the alert to additional fees certain types of investments may incur, particularly trading fees. Some investors enjoy the trading freedom a self-directed 401(k) enables, but they forget about how those trades result in transaction costs that add up with each sale or purchase.

If you’re interested in offering a self-directed brokerage account 401(k), it’s advisable to do so with the assistance of a knowledgable, experienced plan provider, financial consultant, certified professional accountant, tax attorney, broker, or fiduciary who has pledged to act in your best interest.

For most small businesses, it may be safer to offer a few different plan options and a contribution match – that way your employees still feel appreciated, and you don’t need to take on extra responsibility.

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.

How to Evaluate the Cost Effectiveness of Small Business 401(k) Plans

Andrew Meadows / 28 Apr 2023 / 401(k) Plan Information

With so many different 401(k) plans on the market, choosing the right one for your small business can be tricky. So we’re taking the guesswork out of getting yourself (and your employees) set up for the future.

Understanding 401(k) plans: A quick refresher.

By this point in your search, you may be fairly familiar with 401(k) plans and how they can benefit your small business. But just in case: A 401(k) is a retirement savings plan that allows employees to contribute a portion of their pre-tax income to an investment account – and employers can make contributions too.

The contributions made by the employee are deducted from their paycheck and invested in a range of investment options offered by the plan. There are two main types:

• Traditional 401(k): In a traditional 401(k) plan, contributions are made on a pre-tax basis, and any investment gains are tax-deferred. When the employee withdraws the funds from the plan, they are subject to federal income tax.

• Roth 401(k): In a Roth 401(k) plan, contributions are made on an after-tax basis, and any investment gains are tax-deferred. When the employee withdraws the funds from the plan, they are not subject to federal income tax.

Costs to consider.

• Setup Fees. Every retirement plan costs money for setup and administration. But the good news about setup fees is that you can actually get up to $16,500* in tax credits. You can use these credits to offset the cost of your plan over the first three years.

Even if you set up your plan last year or the year before, you can still qualify for a portion of those tax credits for the remaining years. This governmental boost is intended to help small business owners afford setting up these plans so that more people can save for their retirement.

• Plan Fees. It’s always important to compare the relative prices of any plan you are considering. Look for a plan that charges a flat fee rather than a percentage based fee (sometimes called “employee pricing”).
• Time. The administration of a 401(k) plan can be time-consuming and complex. Make sure you’re factoring in the time it’ll take to maintain the plan. Recordkeeping, compliance testing, and reporting all fall under this, so be sure you or someone on your team can take on these responsibilities – or consider choosing a plan that covers them.

401(k) plan features to consider.

• Plan type. Choose a plan that offers the provisions you may need, such as a Safe Harbor plan that allows you to bypass certain IRS tests when you make a tax-deductible contribution to your employees’ retirements.
• Impact on Employee Retention. How much will offering a 401(k) plan encourage your employees to stick with you? Will offering a 401(k) plan make your company that much more competitive to prospective employees who are considering a job offer from you? A 401(k) plan can help you attract and retain top talent. When you’re picking your small business’s 401(k) plan, make sure you’re choosing one that will positively impact your employees and work with their lifestyles.
• Tax Benefits. 401(k) plans offer tax benefits to both employers and employees. Make sure the potential tax benefits associated with each plan you’re considering are significant enough to warrant any additional costs.
• Investment Options. Different 401(k) plans offer different investment options. Evaluate the investment options offered by each plan and determine whether they align with your employees’ investment objectives and risk tolerance.
• Vesting Schedule. Vesting is the amount of time an employee must work for your small business before they are entitled to any contributions you make to their 401(k) plan. Some plans have a vesting schedule requiring employees to work for the company for a certain number of years before fully vested in the employer contributions.
• Eligibility and Participation Requirements. Some 401(k) plans have eligibility and participation requirements, such as a waiting period before an employee can start contributing to the plan or a minimum number of hours worked per week. Make sure these requirements make sense for you and your employees

Evaluate: Is your 401(k) plan cost effective?

Once you have noted the different 401(k) plans based on the above factors, it’s time to compare these costs and features side by side to determine their overall cost-effectiveness.

What is the overall cost compared with the expected outcome? Ask yourself – are you:

• Saving the cost of setup via those juicy tax credits (see above)
• Maximizing the annual contribution to your own account
• Delivering your business the features it needs to remain in compliance

Find out if a Ubiquity 401(k) plan is right for your small business. Call us toll-free 866.845.5058 for a free consultation.

^{*Qualify for up to $5,000 each year for three years when you open a new plan. Qualify for up to an additional $500 each year for three years when you add automatic enrollment to your plan.}