Category: Small Business 401k

The retirement planning landscape has undergone transformative changes with the introduction of the SECURE Act in 2019 and the SECURE Act 2.0 in 2022. These legislative milestones have reshaped retirement plan eligibility, especially for long-term part-time employees. For plan sponsors, understanding and adapting to these changes is essential for tailoring your company’s retirement solutions. This post aims to provide an insightful guide for plan sponsors navigating these new regulations, ensuring smooth transition and compliance.

Defining Long-Term Part-Time Employees:

Central to these changes is the redefined criteria for long-term part-time (LTPT) employees, a key group affected by the SECURE Act. Individuals, who have logged over 500 hours (around 12.5 weeks full-time) annually for three consecutive years, starting from January 1, 2021, are now eligible for retirement plan participation, marking a significant shift in eligibility criteria.

Flexibility and Impact of Updated LTPT Eligibility Criteria:

The SECURE Act’s modifications, effective from January 1, 2024, introduce not just new eligibility criteria for Long-Term Part-Time (LTPT) employees but also considerable flexibility. If they meet the plan eligibility criteria, LTPT employees can continue their participation in the company’s 401(k) plan even with fluctuating annual work hours, ensuring financial inclusivity and acknowledging the diverse contributions of all employees. However, it’s important to note that plans are not required to include LTPT employees in employer contributions, automatic enrollment, or the plan’s non-discrimination testing, including Top Heavy requirements. This distinction is crucial for understanding both the scope and the limitations of LTPT employees’ participation in these retirement plans.

Staying Ahead with SECURE Act 2.0:

In 2025, the SECURE Act 2.0 will further amend the eligibility requirement for LTPT employees, reducing it from three to two consecutive years. It’s crucial for plan sponsors to stay informed about these legislative changes and adapt their strategies accordingly to anticipate future shifts.

Effective Communication Strategies:

Plan sponsors are tasked with the crucial role of communicating SECURE Act updates to eligible long-term part-time employees. They must ensure these employees are informed about their new retirement plan eligibility and enrollment process before January 1st, 2024. While plan sponsors may coordinate with their plan providers for logistical support, the primary responsibility for clear and timely communication lies with them.

Ensuring Compliance Through Plan Document Updates:

Understanding the evolving landscape of the new LTPT rules is essential for maintaining compliance in the future. Currently, the industry is awaiting further technical guidance from the IRS regarding these requirements. While plan amendments for LTPT compliance have not yet begun, it’s important to operate in good faith with the anticipation of adapting your plan accordingly. Once the IRS approves the necessary amendments, leveraging the expertise of your plan provider will be key to ensure your documents are accurately updated and fully compliant with the new regulations. Staying informed and prepared will help mitigate potential issues and align your plan with the latest regulations when the time comes.

Preparing for the Change:

The inclusion of long-term part-time employees in retirement plans is a significant step towards financial security and inclusivity. As a plan sponsor, staying informed and adaptable to these evolving regulations is crucial. By adhering to the new eligibility criteria, engaging in effective communication, and being vigilant about legislative updates, you ensure that your retirement solutions are inclusive and compliant. This proactive approach not only aligns with current regulations but also promotes a culture of financial well-being among your employees.

Explore Retirement Solutions with Ubiquity Retirement & Savings®

Need assistance with the SECURE Act’s retirement plan changes? Ubiquity Retirement + Savings offers expert solutions for small businesses. Whether converting an existing plan or setting up a new one, we’re here to guide you to the right choice. Contact us today for compliant and efficient retirement plan options tailored to your business needs.

A Comprehensive Guide for Small Business Owners

Offering a small business 401(k) retirement plan is a vital part of attracting top-notch employees and enhancing the financial security of your workforce. But this benefit comes with its own set of regulatory obligations. This article aims to demystify the essentials of 401(k) plan compliance, providing a clear roadmap to avoid legal pitfalls and create a solid retirement savings vehicle for your employees.

Understanding 401(k) Plan Compliance in Depth

401(k) plan compliance is about more than just ticking off boxes; it’s about abiding by the laws and guidelines laid down by the Internal Revenue Service (IRS) and the Department of Labor (DOL). These agencies collaborate to ensure that 401(k) plans are administered equitably and within legal parameters.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Consequences of Non-Compliance

Failing to comply with regulations can be a costly misstep. Consequences range from monetary fines and penalties to plan disqualification, which could be devastating for your employees and damage your business reputation. Should you find compliance daunting, you might consider options like a Safe Harbor 401(k), which offers some relief from non-discrimination testing, thus simplifying compliance.

Key Strategies for 401(k) Compliance Management

Here are actionable steps to stay ahead of 401(k) compliance requirements:

Plan Documentation and Effective Communication

Think of your plan documents as the constitution of your small business 401(k) plan. They should meticulously outline plan features, eligibility criteria, contribution limits, investment choices, and vesting schedules. Keep these documents up-to-date, and ensure they align with both your operational procedures and regulatory changes.

Communicate Clearly and Often

Regular, straightforward communication with your employees is a must. Utilize various channels, such as emails, webinars, or even in-house workshops, to distribute plan summaries, changes, and educational resources. This not only keeps your workforce informed but also fosters greater engagement with the retirement plan.

Contributions and Annual Nondiscrimination Testing

Keep a close eye on IRS-set contribution limits, which are subject to change. For the year 2023, the employee contribution limit is $22,500, with an additional catch-up contribution provision for employees aged 50 or older. These limits change annually and are generally announced in late October or early November.

Non-discrimination testing for 401(k) plans is a set of annual tests required by the IRS to ensure that a company’s retirement plan does not unfairly favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs). These tests evaluate contributions, benefits, and the utilization of the plan’s features to make sure they are proportionately equitable across different employee income levels. Failing these tests may require corrective actions such as refunding contributions to HCEs or making additional contributions to NHCEs. The aim is to create a fair retirement plan that benefits all employees, not just those at the higher end of the pay scale.

Vesting and Defined Employee Eligibility

Eligibility criteria may include factors like age and length of service. Establish these thresholds carefully, balancing between inclusivity and administrative ease. Your plan’s vesting schedule should also align with your workforce retention strategies. Whether you opt for immediate or graded vesting, make sure it’s clearly communicated and easy for employees to understand.

Investment Options

Having a wide array of investment options is more than a nice-to-have; it’s a necessity. Your selections should accommodate different risk tolerances and investment philosophies. Keep an eye out for any underperforming options and consider periodic realignments.

Cost Considerations

Partner with a 401(k) plan provider who offers transparent, low-fee options. Remember, fees — especially percentage-based fees — erode earnings over time, impacting the retirement savings of both your employees and your business. Look for providers (like Ubiquity) that offer flat fees. Flat fees don’t increase when your balance grows, so you can save thousands over the life of your account.

Fiduciary Responsibilities: More Than Just a Formality

As the plan sponsor, you are legally obligated to act in your employees’ best interests. This includes prudent management of investments and ensuring the plan operates efficiently. Given the complexities involved, hiring a third-party advisor or consultant with specialized expertise can be invaluable.

Your Takeaway

Offering a 401(k) plan as a small business owner is both a substantial benefit to your employees and a significant responsibility. Navigating the maze of compliance requirements might seem daunting, but understanding these elements can go a long way in safeguarding your plan and avoiding unnecessary legal hassles. Always stay current with regulatory changes and consider professional consultation to ensure you’re managing your retirement plan as effectively as possible.

 

Please refer to Important Information for details.

Overwhelmed by the thought of setting up a 401(k) plan for your small business? You’re not alone. In this guide, we’ll break down the essential questions you need to ask your retirement plan provider to make the process easier—and ensure a secure financial future for both you and your employees.

1. What Type of 401(k) Plan is Best for My Business?

Before you get lost in the details, understand there are several types of 401(k) plan available. These include traditional 401(k)s, Safe Harbor 401(k)s, and sole proprietor 401(k)s.

  • Example: A small tech startup may find that a Safe Harbor 401(k) is a better fit due to easier compliance tests, allowing them to focus more on growth.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

2. What are the Costs Involved?

Initiating a 401(k) as part of your retirement plan setup is a pivotal step towards a secure financial future. Know that retirement plans aren’t one-size-fits-all, especially when it comes to costs. Alongside administrative fees, investment management fees, and employee education expenses, you’ll find different pricing models. Flat fee plans can be particularly advantageous for small business owners, as they provide predictable costs that are easier to budget for. By asking targeted questions during the setup process, you’ll ensure your plan is customized to meet your business needs, compliant with legal requirements, and provides your employees with valuable benefits. Don’t delay in securing both your and your employees’ financial futures—reach out to a qualified retirement plan provider today.

  • Call to Action: Make sure you get a full breakdown of these costs upfront to avoid unexpected financial surprises down the line.

3. How Can I Maximize Tax Benefits?

You can save money on taxes with a 401(k). Talk to your provider about tax credits, deductions, and employer contributions that can benefit both you and your employees.

  • Call to Action: Consult your tax advisor to explore all the tax-saving opportunities available to you.

4. What Administrative Responsibilities Will I Have?

Even though a provider handles most of the grunt work, you’re not entirely off the hook. You’ll still need to manage:

  • Employee communication
  • Plan monitoring
  • Compliance

5. How Can Employees Enroll and Manage Their Accounts?

Enrollment should be hassle-free for your employees. Find out about the enrollment process, what account management tools are available, and if there are educational resources to help your staff make wise investment choices.

6. What Compliance Measures Should I Be Aware Of?

Stay on the right side of the law by ensuring compliance with IRS regulations. Here’s what to keep an eye on:

  • Nondiscrimination testing
  • Timely filing of required forms

7. Can I Customize the Plan to Fit My Business Needs?

Your business is unique, and your 401(k) should reflect that. Discuss tailoring features, contribution limits, and eligibility criteria to suit your specific needs.

8. How Often Will the Plan be Reviewed and Updated?

Good retirement planning is ongoing. Find out how often your provider will assess the plan’s performance and make necessary adjustments.

9. What Employee Education and Support Will be Provided?

An educated employee is an empowered one. Ask what educational resources—like workshops, online tools, or one-on-one consultations—are available.

Your Takeaway

Initiating a 401(k) as part of your retirement plan setup is a pivotal step towards a secure financial future. By asking these targeted questions during the setup process, you’ll ensure that your plan is not only customized to meet your business needs but also compliant with legal requirements. In turn, this will provide your employees with valuable benefits. Don’t delay in securing both your and your employees’ financial futures—reach out to a qualified retirement plan provider today.

 

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.

For small business owners, offering a retirement plan can be particularly advantageous. One significant benefit is the ability to attract and retain skilled employees. In competitive job markets, job seekers often consider not only their salary but also the overall benefits package offered by potential employers. A well-structured retirement plan can serve as a valuable incentive for prospective employees, making your business more appealing compared to others without such benefits. Likewise, existing employees are more likely to remain loyal to a company that invests in their future and offers a retirement plan, fostering a sense of security and commitment.

Moreover, in some states or regions, offering a retirement plan may be mandatory for businesses above a certain size or revenue threshold. Government regulations and labor laws may require employers to participate in state-run retirement programs or offer their retirement plans to employees. By complying with these regulations, small business owners can avoid legal issues and potential penalties while providing a valuable financial safety net for their workers.

Several states have already implemented retirement mandate deadlines to encourage small businesses to provide retirement benefits. As a retirement plan provider, it’s essential to stay updated on these deadlines to ensure compliance and support your clients effectively. Following are the deadlines to be aware of for 2023:

Oregon

  • Deadline: July 31st for businesses with 1–3 employees.
  • The OregonSaves program requires employers to facilitate retirement savings for their employees.
  • Deadlines are determined by the number of employees. The more employees you have, the earlier deadlines will be.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Connecticut

  • Deadline: August 31, 2023
  • Businesses with 5 or more employees must offer a retirement plan or provide access to MyCTSavings.
  • Employers have the flexibility to choose between sponsoring their plan or offering a payroll deduction IRA.

Illinois

  • Deadline: November 1, 2023
  • Employers with 5–15 or more employees must offer a retirement plan or enroll in the Illinois Secure Choice Savings Program.
  • The program allows employees to contribute a portion of their paycheck to an individual retirement account (IRA).

Own a small business? Here’s how to prepare for your upcoming state deadline.

Plan ahead

  • Stay informed about retirement mandate deadlines in your state.
  • Allocate resources and time to implement a retirement plan or enroll in a state-sponsored program.

Seek guidance from professionals

  • Consult a retirement plan provider to understand the requirements and options available.
  • They can guide you through the process, help choose the right plan, and ensure compliance with regulations.

Educate your employees

  • Communicate the benefits of retirement plans to your employees.
  • Provide resources and educational materials to encourage participation and empower your workforce to make informed decisions.

Assess the financial impact

  • Evaluate the financial implications of offering a retirement plan or participating in a state-sponsored program.
  • Consider tax incentives, cost-sharing options, and long-term benefits to make an informed decision.

The Benefits of a Ubiquity Small Business 401(k)

You may think, “Well, a state-sponsored plan might be the path of least resistance,” but there are several reasons a Ubiquity small business 401(k) might be a better solution for your business:

  1. Ubiquity 401(k) complies with your state mandate requirements, no guesswork required.
  2. It also saves more in personal and business taxes, while lowering your taxable income.
  3. Our plug-n-play payroll integration saves time and stress.
  4. Low, flat fees are your friend.
  5. As a private solution, a small business 401(k) plan through Ubiquity isn’t tied to the state (so it offers better protection of your assets).

As a small business owner, complying with retirement mandate deadlines is crucial not only for legal reasons but also for attracting and retaining top talent. By offering retirement benefits, you demonstrate your commitment to your employees’ financial security and wellbeing.

Stay proactive, seek professional guidance, and engage your workforce to ensure a smooth transition towards a secure future–no matter when your state’s deadline is.

Inflation is a topic that has been widely discussed in recent times, and its impact on retirement planning cannot be overlooked, especially for small business owners. Planning for retirement involves ensuring that there will be enough funds to cover expenses and maintain a comfortable lifestyle in the future. Understanding the effects of inflation and how to navigate them is crucial for effective retirement planning. In this article, we will explore the impacts of inflation on retirement and provide strategies to help small business owners and their employees prepare for it.

What is Inflation?

Inflation refers to the persistent increase in the general price level of goods and services over time. As prices rise, the purchasing power of money decreases, meaning that the same amount of currency can buy fewer goods or services. Inflation is influenced by various factors, including changes in supply and demand, government policies, and economic growth rates. It is an inherent characteristic of most economies and has a direct impact on people’s financial well-being.

The Impact of Inflation on Your 401(k)

Inflation poses significant challenges for retirees, as it erodes the purchasing power of their fixed incomes over time. Many retirees rely on fixed income sources such as pensions or annuities to sustain their lifestyle during retirement. However, as prices rise due to inflation, the value of these fixed incomes diminishes. This can lead to a gradual decline in the standard of living, making it essential to account for inflation when planning for retirement.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Planning for Inflation in Retirement

When setting up a small business 401(k) plan, it is important to consider the impact of future inflation rates. While it is difficult to predict inflation with absolute certainty, historical data and economic indicators can provide some guidance. Consulting with a plan advisor or a financial advisor who specializes in retirement planning can help develop a personalized strategy that takes into account factors such as inflation, longevity, and individual goals.

Strategies for Inflation-Proof Retirement

While it is impossible to completely avoid the impacts of inflation, there are strategies that can help mitigate its effects on retirement savings. Consider the following strategies when planning for inflation:

  1. Contribute the Maximum Amount: Take advantage of the maximum allowable contribution limits to your retirement accounts. These limits increase annually to keep up with inflation. For example, in 2023, the maximum contribution to a 401(k) rose to $22,500, with an additional $7,500 in catch-up contributions for individuals age 50 and older.
  2. Employer Match: If your small business offers an employer match for employee contributions to the 401(k) plan, encourage employees to take full advantage of it. An employer match is essentially free money that can significantly boost retirement savings. And don’t forget that as the employer, you can contribute to your own retirement this way – up to the IRS limit of $66,000 in total for 2023!
  3. Budget for Rising Healthcare Costs: Healthcare costs may rise faster than the general inflation rate. It is important to account for these expenses when planning for retirement and ensure that sufficient funds are allocated to cover future healthcare needs.
  4. Regularly Monitor and Review Your Plan: Keep a close eye on your small business 401(k) plan and make necessary adjustments as needed as your business needs and company change. Stay informed about economic trends, investment performance, and changes in regulations that may impact retirement savings.
  5. Diversify Investments: Spreading investments across different asset classes, such as stocks, bonds, and real estate, can help provide a hedge against inflation. Each asset class may react differently to inflationary pressures, reducing the overall risk to the portfolio.
  6. Adjust Asset Allocation: Evaluate your asset allocation based on risk tolerance and retirement timeline. If you are a small business owner offering a 401(k) plan, consider providing options that align with your employees’ retirement timelines or offer monitoring by investment experts who have fiduciary responsibilities.

By implementing these strategies and staying proactive in your retirement planning, you can better prepare yourself and your employees for the impact of inflation. It is important to work with financial professionals who can provide guidance tailored to your specific circumstances and help ensure that your retirement plan is equipped to withstand the challenges posed by inflation.

In conclusion, small business owners need to consider the impact of inflation on retirement planning. By understanding inflation and its effects, and implementing appropriate strategies, it is possible to mitigate the erosion of purchasing power and build a retirement nest egg that can withstand the test of time. Stay informed, seek professional advice, and regularly review your retirement plan to ensure that you and your employees are well-prepared for the future.

 

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. 

If you own a small business, offering a 401(k) plan can be a great way to attract and retain talented employees. But if you want to make your plan even more appealing, consider adding a vesting schedule.

What is a Vesting Schedule?

A vesting schedule is a timeline that determines when employees have ownership of their employer’s contributions to their retirement plan. Without a vesting schedule, employees can lose all employer contributions if they leave the company too soon. This isn’t ideal for their future planning or for your small business’s reputation! By adding a vesting schedule, you can incentivize your employees to stay longer and reward them for their loyalty.

How Does a Vesting Schedule Work?

Vesting schedules typically have a set timeline for when employees become fully vested in their employer’s contributions. For example, you could implement a three-year vesting schedule, which means your employees become 100% vested in your contributions after three years of service.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Benefits of Offering a Vesting Schedule

  1. Attract and Retain Talent: A 401(k) vesting schedule shows that you’re invested in your employees’ futures, and it also encourages them to stay with your small business for the long term.
  2. Encourage Employee Loyalty: By offering a vesting schedule, you’ll encourage employee loyalty. Employees are more likely to stay with a company if they know they will be rewarded for their service.
  3. Cost Savings for the Employer: A vesting schedule can also help you save money. If your employees leave the company before becoming fully vested, you’re not obligated to pay them the full amount of their employer contributions.
  4. Increased Employee Retirement Savings: Employees are more likely to contribute to their retirement plan if they know their employer is contributing as well. A vesting schedule can motivate employees to save for retirement and ensure they receive the full benefit of your matching contributions.
  5. Fairness for Employees: Without a vesting schedule, employees who leave the company early may not receive any of your matching contributions. A vesting schedule ensures that employees are rewarded for their service and receive the full benefit of your contributions if they meet the criteria.
  6. Protection for Employer Contributions: If an employee leaves the company before becoming fully vested, your small business can retain the unvested portion of their contributions.
  7. Compliance with Legal Requirements: The Employee Retirement Income Security Act (ERISA) sets minimum vesting requirements for retirement plans. By offering a vesting schedule, you can ensure your small business is in compliance with ERISA.

Types of Vesting Schedules

There are two main types of vesting schedules:

Cliff Vesting

Cliff vesting is when employees become fully vested after a certain period of time, usually three to five years. With cliff vesting, employees are either fully vested or not at all, depending on their length of service.

Graded Vesting

Graded vesting is when employees become partially vested over time. With graded vesting, employees earn a percentage of their employer’s contributions based on their length of service. For example, you could implement a six-year graded vesting schedule where your small business’s employees become 20% vested in your contributions after two years of service and earn an additional 20% for each subsequent year until they are fully vested after six years.

Considerations for Implementing a Vesting Schedule

Before implementing a vesting schedule in your small business 401(k) plan, consider the following:

  1. Plan Design: Your vesting schedule should be designed to meet the needs of your business and employees. Consider factors such as employee turnover, industry standards, and company goals.
  2. Communication: It’s important to communicate the vesting schedule to your employees clearly and regularly. Ensure they understand the plan’s benefits and the vesting timeline.
  3. Administration: Vesting schedules require ongoing administration to ensure compliance with legal requirements and accurate recordkeeping. Consider hiring a third-party administrator to handle these tasks.
  4. Costs: Vesting schedules can have costs associated with them, such as administrative fees and the cost of employer contributions. Consider these costs when designing your plan. (And look for a provider with good customer service and low, flat fees!)

As a small business owner, you might be wondering if offering a 401(k) plan to your employees is a worthwhile investment. While providing a retirement savings plan can appear expensive, there are significant advantages to offering one—and luckily, there are plenty of low-cost 401(k) plans available for you to consider (hi, we’re Ubiquity).

Benefits of a Low-Cost 401(k) Plan for Your Small Business

Some things in life are worth splurging on, but a good-quality 401(k) plan doesn’t have to be one of them. While certain 401(k) plans can be costly to set up and maintain, there are affordable options tailored for small businesses and their employees, and trust us—they come with perks.

Affordable for Small Businesses

By opting for a small business 401(k) plan with low fees and expenses, you can provide your employees with a retirement savings plan that won’t break the bank for either of you.

Simplified Administration

Low-cost 401(k) plans often come with simplified administration. This means the plan is easier to set up and manage, ultimately saving you time and money. Some low-cost plans even provide online tools and resources to assist your small business’s employees in managing their retirement savings.

Investment Options

A low-cost plan doesn’t imply limited investment options! Look for a plan that allows your employees to choose investments aligned with their retirement savings goals and risk tolerance.

How to Choose a Low-Cost 401(k) Plan for Your Small Business

Don’t let analysis paralysis overwhelm you. Here are some factors to consider when selecting the right 401(k) plan for your small business:

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Fees and Expenses

Prioritize a plan with low fees and expenses to ensure these costs don’t eat into your employees’ retirement savings.

Investment Options

Seek a plan that offers a range of investment options to meet the diverse needs of your employees.

Plan Administration

If the 401(k) plan you choose is simple to set up and manage, and provides online tools and resources for your employees, chances are it could be an excellent fit.

Provider Reputation

Consider the reputation of the 401(k) plan provider. Look for a provider with a track record of offering high-quality retirement plans and excellent customer service specifically for small businesses.

Setting up a Low-Cost 401(k) Plan

Ready to get started? Follow these five easy steps to set up a 401(k) plan for your small business’s employees and set them on the path to saving for retirement:

  • Choose a 401(k) plan provider that offers low-cost plans.
  • Determine the eligibility requirements for the plan.
  • Decide on the contribution structure for the plan—will you match employee contributions, make profit-sharing contributions, or both?
  • Select the investment options that will be available to employees.
  • Set up the plan and communicate with employees about how to enroll.

You’ve Set Up a 401(k) Plan… Now What?

Communication is key when it comes to informing your small business’s employees about their new 401(k) plan. Here’s how to go about it:

Provide clear information

Ensure your employees understand the plan and its benefits. Offer clear information on how the plan works, the available investment options, and the associated fees and expenses. (Bonus points for helping define commonly-used financial terminology.)

Encourage participation

Emphasize the tax advantages and the benefits of saving for retirement to motivate employees to take advantage of the plan.

Make enrollment easy

Provide straightforward instructions, online tools, and timesaving features like automatic enrollment to help employees enroll in the plan—when enrollment is foolproof, there’s no reason to skip it!

With a low-cost 401(k) plan in place, your small business can empower employees to save for retirement without burdening your budget. It’s a win-win situation that enhances employee satisfaction and helps secure their financial future. So don’t delay—explore the available options and get started on providing a valuable benefit to your team.

As a small business owner, you might think offering your employees a 401(k) plan is unnecessary. However, by offering a diversified investment option in your small business 401(k) plan, you can provide your employees with valuable benefits that can help you attract and retain top talent while also increasing your own financial security.

What is a Diversified Investment Option in a 401(k) Plan?

A diversified investment option is a type of investment that is designed to spread risk across multiple asset classes. In a 401(k) plan context, this can help your small business’s employees spread their savings across multiple funds, including stocks, bonds, and mutual funds. This approach can help reduce the risk of a single investment losing value, which is important for employees saving for the future.

Why You Should Offer a Diversified Investment Option

1. Increased Employee Engagement and Retention

Employees are more likely to stay with a company that offers a retirement savings plan that meets their financial needs. By offering a diversified investment option, you can show your employees that you care about their financial wellbeing, which can help to build loyalty and trust.

2. Reduced Fiduciary Liability

As a small business owner, you have a fiduciary responsibility to your employees to act in their best interest when it comes to managing their retirement savings. Offering a diversified investment option can help to reduce your fiduciary liability, as it allows employees to manage their own investments and make their own investment decisions.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

3. Improved Retirement Outcomes for Employees

Diversification is a critical concept in investing, and it plays a vital role in 401(k) plans as well. By offering a diverse range of investment options within the plan, you can help employees reduce risk and potentially increase their returns over the long term. This, in turn, can contribute to their ability to save more money for retirement and achieve a more secure financial future. Here’s how diversification can have these positive effects:

  • Risk reduction: Diversification involves spreading investments across different asset classes, such as stocks, bonds, and cash equivalents, as well as different industries, sectors, and geographic regions. The goal is to create a portfolio that is not overly concentrated in any single investment. By diversifying their investments, employees can reduce the impact of a single investment’s poor performance on their overall portfolio. If one investment performs poorly, others may offset those losses, helping to mitigate risk.
  • Increased returns: Diversification also has the potential to increase overall investment returns. Different asset classes tend to perform differently under various market conditions. While one asset class may experience a decline, another may be performing well. By holding a diversified portfolio, employees have the opportunity to capture the positive returns of different investments. Over time, this can potentially lead to a higher average return compared to a concentrated portfolio.
  • Long-term growth: The primary objective of a 401(k) plan is to provide employees with a vehicle to save for retirement. By offering a well-diversified investment lineup, you can help employees achieve long-term growth. Diversification helps to smooth out the volatility that comes with investing, as different investments may experience ups and downs at different times. This stability can instill confidence in employees, encouraging them to stay invested and maintain their contributions over the long haul.
  • Preservation of capital: Diversification can also play a role in capital preservation. By allocating investments across different asset classes, employees can avoid the risk of a significant loss in their retirement savings. If a particular investment suffers a substantial decline, the impact on the overall portfolio can be minimized by the presence of other investments that may be performing well. This can help employees protect their capital and avoid severe setbacks as they progress towards retirement.
  • Enhanced retirement readiness: Ultimately, the aim of a 401(k) plan is to help employees save for retirement and achieve financial security. By offering a well-diversified investment lineup, you empower employees to make choices that align with their risk tolerance and investment goals. Diversification helps create a balanced and resilient portfolio that has the potential to weather different market conditions. As employees accumulate savings through a diversified approach, they can be better prepared for a financially secure retirement.

It’s important to note that while diversification can help reduce risk, it does not eliminate it entirely, nor does it guarantee investment success or protect against losses.

Employees should be encouraged to regularly review and rebalance their portfolios based on their individual circumstances and investment objectives. Providing education and resources on the benefits and principles of diversification can help employees make informed decisions and take advantage of the potential long-term benefits it offers.

4. Increased Tax Savings for Business Owners

Offering a 401(k) plan with a diversified investment option can also provide tax savings and other benefits for small business owners. By offering a match and contributing to the plan on behalf of employees, you can reduce your taxable income, which can help to lower your overall tax bill.

Bonus: Did you know there are tax credits and deductions available to small business owners offering 401(k) plans? Now you do. Here are the details:

  • 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.

As a small business owner, you know the importance of attracting and retaining talented employees. One way to do this is by offering a portable 401(k) plan. A portable 401(k) plan is exactly what it sounds like: A retirement savings plan that employees can take with them if they leave the company.

So… what is it, really?

A portable 401(k) plan is a retirement savings plan that allows employees to take their contributions and employer-matching contributions with them if they leave the company. This type of plan is also known as a rollover 401(k) or individual 401(k). With a portable 401(k) plan, employees can continue to make contributions to their retirement savings account regardless of their employment status.

Why should I offer a portable 401(k) plan?

Glad you asked. From top talent to tax benefits, a portable 401(k) plan could be just what your small business needs.

Benefit #1: Improved Employee Retention

Valuable benefit? Check. Valuable benefit that stays beneficial when employees leave? Check and check. This type of plan can be especially attractive to younger employees who may not plan on staying with the same company for their entire careers.

Benefit #2: Increased Employee Satisfaction

Employees appreciate the ability to save for retirement, and a portable plan allows them to continue to do so even if they change jobs. Plus, 401(k) plans have a huge impact on financial wellness, so think of it as a way to show employees you care.

Benefit #3: Competitive Advantage in Hiring

PSA: If you offer a 401(k) plan, you’ll have a competitive advantage when hiring top talent. It’s that easy. And with a portable small business 401(k), your business can be especially attractive to job seekers looking for job that offers comprehensive benefits.

Benefit #4: Tax Benefits for Employers and Employees

Employer contributions to a 401(k) plan are tax-deductible1, and employees can make pre-tax contributions to their retirement savings account. So it’s a win-win for your small business and your employees when tax season rolls around.

Answer a few simple questions to find the optimal plan for you and your small business.

How many employees do you have?
I am a sole proprietor
(just me/or my business partner/spouse)

Or schedule a free consultation with a retirement specialist.

Benefit #5: Increased Employee Savings

A portable 401(k) plan can also help employees save more money for retirement. By offering a retirement savings plan with employer-matching contributions, you can help your employees save more money than they would be able to on their own. (And it’s tax-deductible for you.)

Benefit #6: Cost-Effective for Small Businesses

Offering a portable 401(k) plan can be cost-effective for small businesses. There are many affordable options for small business owners to offer a 401(k) – and some of them are even top-rated2. (Hi, we’re Ubiquity.)

While offering a retirement plan can seem like an added expense, it can actually be a really solid option for small businesses. Many providers offer low-cost plans that are tailored specifically for small businesses. Additionally, offering a retirement plan can help reduce turnover costs by improving employee retention, which can save your small business money in the long run.

Benefit #7: Flexible Contribution Options

Portable 401(k) plans offer flexible contribution options for both you and your employees. You can choose to match employee contributions up to a certain percentage, or you can offer your employees a set contribution amount. Employees can also choose to contribute as much or as little as they would like, up to the IRS contribution limits.

Benefit #8: Ease of Administration

Portable 401(k) plans are easy to administer, especially when compared to other retirement plan options like pensions. Many providers offer online administration tools that make it simple for small business owners like you to manage their employees’ retirement plans.

Benefit #9: Opportunity for Higher Contributions

Like all 401(k) plans, portable plans allow for higher contribution limits than traditional IRA accounts. In 2023, the contribution limit for a 401(k) plan is $22,500 for employees under 50 years old and $30,000 for employees over 50 years old. Compare that to the measly $6,500 you’re allowed to save in an IRA! This higher contribution limit can help employees save more money for retirement.

Ready to get started?

Look for a provider that offers low fees, a wide range of investment options, and easy-to-use administration tools… a provider like Ubiquity.

 

 

1 Employers with 50 or fewer employees can receive a tax credit for contributing to their employees’ retirement plans. The credit is a percentage of the amount contributed by the employer, up to a per-employee cap of $1,000. The credit percentage is reduced over five years, with 100% in the first and second years, 75% in the third year, 50% in the fourth year, and 25% in the fifth year. No credit for subsequent tax years, thereafter. 

2 Decimal, Inc. conducted an evaluation of four small-business 401(k) providers in the marketplace by analyzing 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 of January 12, 2023. The evaluation resulted in a higher score for our company compared to the other providers. We strive to provide excellent service to our customers and appreciate their feedback.   

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.

As a small business owner, ensuring that your employees are well taken care of is essential, and offering a 401(k) plan is an excellent way to do so. But creating a 401(k) plan that meets the needs of both your small business and your employees can be a daunting task. So we’re here to help.

Creating a great 401(k) plan for your small business is a valuable benefit for your employees and can help attract and retain talent. Here are some steps you can follow to establish a strong 401(k) plan:

Understand the Basics of a 401(k) Plan

Before diving into the specifics of creating a 401(k) plan, it’s crucial to understand the basics. A 401(k) plan is a type of retirement plan that allows employees to contribute a portion of their income into a tax-deferred account.

Determine your goals and budget

Assess your company’s financial situation and establish your goals for the 401(k) plan. Consider factors such as the level of employer contributions you can afford, the vesting schedule, and any additional benefits you want to offer.

Research 401(k) plan providers

Explore different 401(k) plan providers to find the one that suits your needs. Look for providers that offer a range of investment options, user-friendly online tools, excellent customer service, and competitive fees. Evaluate their track record and reputation in the industry.

Select a plan design

Work with your chosen 401(k) plan provider to design a plan that aligns with your goals and preferences. Decide on features such as eligibility criteria, employee contribution options, and employer matching or profit-sharing contributions. Ensure compliance with legal requirements such as nondiscrimination testing.

Communicate with employees

Once your plan is established, inform your employees about the new benefit. Provide clear and comprehensive communication materials that explain the plan, its benefits, contribution options, and enrollment process. Offer educational resources to help employees make informed investment decisions.

Streamline administration

Simplify the administrative tasks associated with the 401(k) plan. Consider leveraging automated systems that handle payroll deductions, contributions, and reporting. These tools can save time and minimize errors.

Monitor and review the plan

Regularly review the plan’s performance, investment options, and fees. Ensure that the plan remains compliant with applicable laws and regulations. Seek feedback from employees and make adjustments as necessary to meet their evolving needs.

Offer employee education and support

Encourage employees to take advantage of financial education resources to help them make informed investment decisions. Consider offering access to resources or online tools that provide retirement planning assistance.

Stay informed about legal changes

Keep up to date with any regulatory or legal changes that may affect your 401(k) plan. Consult with a qualified professional to ensure ongoing compliance with laws and regulations.

Evaluate the plan periodically

Assess the effectiveness of your 401(k) plan on a regular basis – annually at a minimum. Analyze participation rates, employee satisfaction, investment performance, and overall costs. Consider making adjustments or enhancements based on feedback and changing circumstances.

Read Ubiquity's Guide to Small Business 401(k) Plans
Download Your 401(k) Guide Now

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Talk to Sales
Schedule a Free Consultation

Contact Support
Visit our Help Center
support@myubiquity.com
Monday–Friday
6am–5pm PT / 9am–8pm ET

© 2024 Ubiquity Retirement + Savings
44 Montgomery Street, Suite 300
San Francisco, CA 94104