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.

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.

Understanding the Tax Advantages of 401(k) Plans for Small Business Owners

Siân Killingsworth / 28 Apr 2023 / 401(k) Plan Information, Safe Harbor, Small Business 401k

Looking for ways to attract top talent to your small business while also saving for your retirement? You’re in the right place. A popular option for accomplishing both goals is to offer your employees a 401(k) plan. Not only does it incentivize them, it also provides you with tax savings. We’re breaking down how.

Tax Advantages for Small Business Owners

Tax deductions

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

First, when you open a new plan, you can qualify for up to $5,000 per year for the first three years^1. Why? Because the government is very enthusiastic about supporting Americans’ retirement!

Second, if that plan has automatic enrollment, you can qualify for another $500 per year for those same three years¹. If you all that all up, it’s a potential $16,500 in tax credits. You can use these credits to cover the cost of plan setup and administration.

Finally, any employer contributions you make to your employees (hint: you’re also considered an employee!) are tax-deductible² for your business, meaning you can reduce the amount of taxable income reported on your business tax return.

Tax deferral

Both you and your employees can benefit from the tax deferral offered by a traditional small business 401(k) plan. Employee contributions are made on a pre-tax basis, meaning they are deducted from their taxable income for the year. This can lower tax liability and increase take-home pay. Taxes on contributions are not due until the funds are withdrawn from the plan.

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.

Types of small business 401(k) plans

Let’s briefly review the various types of 401(k) plans that are available to small businesses. These include:

Traditional 401(k)

This is the most common type of 401(k) plan. It allows employees to make pre-tax contributions to the plan, and employers can choose to make matching contributions. The funds in the account grow tax-free until they are withdrawn in retirement.

Safe Harbor 401(k)

Looking for a plan that makes it easier for you to pass the annual nondiscrimination tests required by the IRS? A Safe Harbor provision added to your 401(k) could be right for you. Under this plan, employers are required to make contributions to the plan on behalf of their employees, either in the form of a matching contribution or a non-elective contribution.

New Comparability 401(k)

When you add a new comparability provision to your 401(k), this give you as the business owner and your highly compensated employees the flexibility to receive higher percentages of employer profit-sharing contributions than other eligible staff. It’s a great way to reward high-performing employees.

Sole-Provider 401(k) plan

This is a plan designed for self-employed individuals and small business owners with no employees (other than a spouse working for them). It allows for higher contribution limits than traditional 401(k) plans, and can be a powerful retirement savings tool for those who qualify.

1 Eligible employers may be able to claim a tax credit of up to $5,000, for three years, for ordinary and necessary costs of starting a 401(k) plan. IRS’ qualifying factors are: 100% for those with 50 or fewer employees, 50% for those with 100 – 50 employees who received at least $5,000 in compensation from you in the preceding year, you had at least one participant who was a non-highly compensated employee (NHCE) and in the three tax years before the first year you’re eligible for the credit, your employees were substantially the same employees who received contributions or accrued benefits in another plan sponsored by you, a member of a controlled group that includes you, or a predecessor of either. Those plans with automatic enrollment can claim a tax credit of $500 per year for a 3 year taxable period.

5 Reasons to Work with a Financial Advisor for Your Small Business 401(k)

Mich Wells / 26 Apr 2023 / 401(k) Plan Information, Advisors, Fiduciary Resources, Small Business 401k

When you own a small business, little things can make a big difference. And working with a financial advisor is one of those things. Instead of you managing your small business’s 401(k) plan, they take on all the complex, time-consuming, and potentially risky work of managing that plan.

There are tons of reasons to hire a financial advisor, so we’re highlighting the top five as they relate to your small business’ retirement plan – and importantly, we’ll show how a financial advisor can help you and your employees achieve your retirement goals.

The Role of a Financial Advisor

Financial advisors are not one-size-fits-all, even within certain subcategories. If you’re looking for financial guidance for your small business and specifically want information about retirement planning, a retirement financial advisor who serves the small business market may be just who you’re looking for.

This is a professional who specializes in helping small business employers choose, implement, and manage their 401(k) plans. They provide valuable guidance on plan options, provider selection, employee education, compliance, and fiduciary responsibility. A financial advisor acts as a partner for small business owners and sometimes takes on many of the administrative burdens of managing a 401(k) plan. (They do the hard work so you don’t have to.)

The Benefits of Working with a 401(k) Plan Advisor

Working with a financial advisor can provide many benefits for small business owners like you. Here are 5 major upsides:

1. Expertise and Experience

It’s a financial advisor’s job to stay up-to-date on the latest investment trends, regulations, and best practices. This means they’ll be ready to provide valuable insights and recommendations for your small business. They also have experience working with a variety of plan sponsors and can leverage that knowledge to help your business.

2. Plan Selection, Administration, and Compliance

A financial advisor can help you select a plan that meets your small business’s needs and your employees’ needs, too. They can also help you stay on top of meeting your compliance responsibilities in a timely manner.

3. Employee Education and Engagement

Looking for a way to engage your employees in the plan? A financial advisor can help with that! They can help educate your team on the benefits of participating in the plan, and provide ongoing support to ensure they are on track to meet their retirement goals. (Hint: many financial advisors refer their clients to the Ubiquity blog for easy-to-understand information about the whole gamut of 401(k) plan details.)

4. Fiduciary Responsibility and Liability

Financial advisors are required by the Advisers Act of 1940 to act in your best interest. They can help you understand and fulfill your fiduciary duties, such as selecting and monitoring plan investments and documenting plan processes and decisions. This can help you mitigate the risk of legal and financial consequences for your business.

5. Cost Savings

PSA: Working with a financial advisor can actually save your small business money in the long run. They can help find providers that offer transparent, flat fees and may even know of more cost-effective plan options (or good reasons to switch providers). They can help you understand the features and benefits of your plan so you can make cost-effective choices.

How to Choose the Right Financial Advisor for your Small Business 401(k)

There are five key factors to consider when selecting a financial advisor:

1. Credentials and Qualifications

Look for a financial advisor who has the appropriate credentials and qualifications: Accredited Investment Fiduciary (AIF) or Certified Plan Fiduciary Advisor (CPFA) designations. These designations indicate that the advisor has specialized knowledge and training in retirement plan management.

2. Relevant Experience

Make sure the financial advisor has experience working with small businesses like yours, and has a track record of success. Ask colleagues and trusted business contacts for recommendations.

3. Services Offered

Consider the range of services the financial advisor offers. Is their specialty comprehensive financial guidance including small business 401(k) plan selection, implementation and management services, or is it simply investment advice? Are they willing to help you with ongoing employee education and engagement?

4. Fees and Costs

Understand the fee structure and costs associated with working with the financial advisor. Look for an advisor who is transparent and upfront about their fees and who can help you minimize plan costs overall.

5. References and Reviews

Research the financial advisor’s reputation by reading online reviews and talking to other small business owners who have worked with them. Look for an advisor who has a positive reputation and a proven track record of success.

5 Easy Ways to Streamline 401(k) Plan Enrollment

Siân Killingsworth / 19 Apr 2023 / 401(k) Plan Information, Small Business 401k

Congratulations! You’ve picked the perfect 401(k) plan for your small business. Now what? It’s time to get your employees saving!

One of the best things you can do is make sure the enrollment process is simple, clear and streamlined.

Common Enrollment Challenges

Encouraging employees to enroll in your small business 401(k) plan can be a daunting task. Some common challenges include understanding the enrollment process, selecting investment options, and deciding on a contribution amount–not to mention the paperwork and deadlines.

Streamlining the Enrollment Process

To make the enrollment process more manageable for your employees, there five top steps you can take:

1. Automate the Process

Choose automatic enrollment as a feature of your plan, admit new participants into the plan as soon as they are eligible to participate. Instead of the traditional method of waiting for the participant to meet eligibility requirements and then enrolling manually (or not – many eligible employees procrastinate or forget), this lets employers add new eligible participants quickly and easily.

You can also choose automatic escalation, a retirement plan feature that enables employees’ contributions to automatically increase by a pre-determined amount or percentage at set intervals (such as annually) until the maximum contribution rate is reached.

2. Simplify the Language

Use clear, straightforward language that employees can easily understand, avoiding technical jargon or complex financial terms. Refer to our glossary for any finance lingo that’s unfamiliar — and share it with your employees, too.

3. Provide Clear Instructions

Enrolling in your small business’s 401(k) plan should have concise directions, including step-by-step instructions on how to access the enrollment portal, select investment options, and determine the right contribution amount.

4. Offer Incentives

Consider offering incentives to employees who enroll in the 401(k) plan, such as matching contributions or other financial rewards. This can help motivate employees to enroll and contribute to the plan.

5. Communicate the Benefits

Make sure your employees know the value of a 401(k) plan. We recommend in-person meetings, educational materials, and even email newsletters. Ensure your small business’s employees understand the importance of saving (including the benefits of compound interest). And feel free to share the Ubiquity blog with them as many of the articles cover topics of interest to individual savers!

8 Key Features of a Good 401(k) Plan for Your Small Business

Mike Cohen, AIF® / 17 Apr 2023 / 401(k) Plan Information, Small Business 401k

PSA: Not all 401(k) plans are created equally. So what does that mean for your small business? How do you know what to look for when evaluating different plans?

Here are the top eight features to look for when picking a small business 401(k) plan.

1. Thoughtful plan design.

Does the plan have different investment options? Does the vesting schedule work for your employees? Is it tailored to small businesses? Is it scalable for when your business expands? All of these things are green flags.

2. Potential for an employer contribution.

One of the most important aspects of a good 401(k) plan is employer contribution. This can come in many forms, including matching contributions or profit-sharing.

The best part of employer matching is that as the small business owner, you can contribute to your own 401(k) as both employee and employer, for a nice big total contribution of up to $66,000 in 2023 (or $73,500 if you’re age 50 or older).

(Wondering if you can make an employer contribution for your employees? We can help you figure it out.)

3. Diverse investment options are a plus.

A good small business 401(k) plan should offer a range of investment options to help your employees diversify their portfolios. This can include stocks, bonds, ETFs, and mutual funds. Diversifying the portfolio’s holdings has been proven to diffuse risk across various types of investment instruments.

It’s the financial equivalent of not putting all your eggs in one basket. This goes a long way toward setting yourself and your employees up for a secure retirement.

4. Low fees have high upsides.

Another important factor to consider is the fees associated with the plan. High fees can eat into your budget – or your employees’ retirement savings. Look for plans with low fees to help maximize savings. (In case you missed it, we’re known for low, flat fees.)

5. Plan administration (and other paperwork).

A good 401(k) plan should be compliant with all applicable laws and regulations. This includes regular plan audits and filings with the Department of Labor. Since you’re probably busy focusing on running your small business, it’s good to find a plan that can help you maintain the day-to-day logistics.

6. Opportunities for employee education.

An often-overlooked aspect of plan administration is participant education. Many employees, especially those who are newer to the workforce, do not have a solid financial education and may be hesitant to ask questions.

So, make it easy for them to learn how to manage their futures. A good small business 401(k) plan should offer plenty of resources to help employees understand the benefits of saving for retirement. Group meetings to review plan provisions and access to online resources such as the Ubiquity blog are a good start.

7. Your plan provider has a good reputation…

Choosing the right plan provider is critical to the success of a 401(k) plan. Look for providers with a good reputation and a proven track record of providing quality plans. (We’re ranked #1 on Google Reviews for small business 401(k)s. Just FYI.)

8. … And innovative tech.

In today’s digital age, choosing a plan provider that offers robust technology solutions is important. This can include online account access, payroll integration, easy-to-use investment tools and more.

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.

An evaluation has been conducted by Decimal, Inc. through its research of independent customer reviews on Google, Trustpilot, and the Better Business Bureau as reported by unaffiliated contributors on or before September 30, 2022, with a revaluation date on January 12, 2023, resulting in a better evaluation, for four similar small-business 401(k) providers in the marketplace. 

Reviewing and Updating Your Small Business 401(k) Plan

Siân Killingsworth / 14 Apr 2023 / 401(k) Plan Information, Personal Finance, Safe Harbor, Small Business 401k

As a small business owner, you may not be intimately familiar with the details of your 401(k) plan. That’s pretty normal, but it’s important to know what your options are, how they can help you save on taxes, and even potentially help you grow your business.

It’s smart to review your plan document annually, but more frequently if your business changes throughout the year. For example, if your business expands significantly, or if you hire a new employee who will be working part-time instead of full-time, you should revisit your eligibility and contribution requirements. You may also want to start or update employer contributions to employees’ accounts.

Why is Regularly Reviewing and Updating Your 401(k) Plan Important?

• Changes in business size can necessitate changes to your plan. When you start out as a one-person shop, it makes sense for your retirement savings account to be a solo 401(k) plan such as a Ubiquity Single(k)®. But as your company grows and hires more employees, you may find that you need to upgrade to a plan that covers all your employees, such as a Ubiquity Custom(k)®. To ensure that your plan passes most mandatory IRS testing, consider adding a Safe Harbor provision to your existing 401(k) plan. This enables your company to actually bypass certain compliance tests because you’re required to make minimum contributions to all employees at a pre-approved rate to ensure all employees are being treated fairly.
• Regulations change. Keeping up with these changes is crucial if you want to avoid penalties or fines from the government. And don’t forget that sometimes these changes are to your benefit! For example, annual contribution limits rise, meaning that you and your employees can all put more money in your 401(k)s each year. For 2023, anyone under age 50 can save up to $22,500, and those age 50 and older can save up to $30,000.
• Improve your own retirement readiness. By regularly reviewing and updating your 401(k) plan, you’ll be able to ensure that you and all of your employees are saving for retirement on schedule. Are you taking advantage of all the tax savings opportunities your plan provides? Are you maxing out your contributions to your own retirement?
• Increase employee satisfaction. Employees who feel valued by their employers are more likely to stay with them longer than those who don’t feel valued, which means regular reviews and updated benefits could help keep turnover low.
• Improve employee participation. The more employees participate in their own 401(k)s, the better set up they will be in the future.

How to Review Your 401(k) Plan

There are several steps you can take to help your employees get the most out of their retirement plans.

First and foremost, review the plan documents for accuracy and completeness. Make sure that all information in the document and with your provider are is current and accurate, including:

• Name and address of your company.
• Designated plan sponsor, trustee(s), and financial advisor, if applicable.
• Designated investment options available within the plan.

The plan should:

• Cover the appropriate employees.
• Provide employees required disclosures.
• Deposit employee deferrals on time.
• Make employer contributions on time.
• Follow the terms of the plan document.
• Limit employee deferrals and employer contributions to the proper maximum limits.

Reviewing your small business 401(k) plan doesn’t just mean looking at it and then forgetting about it again. It means making sure that any necessary updates are made as soon as possible so that no one gets left out or misses out on benefits they could otherwise receive from participating in the program – including 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.