How to Simplify the Process of Setting up a 401(k) Plan
Author: Siân Killingsworth / 6 Mar 2023 / 401(k) Plan Information
As a small business owner, you always have a lot on your plate – and never enough time to do it all. By delegating the setup and administration of a 401(k) plan to retirement professionals, you’ll save time and avoid stress. Additionally, if you want to remain a competitive employer, it’s important to offer your employees an incentive for saving for retirement. Luckily, there are many options available to help make the process simpler and less expensive than ever before.
A 401(k) is a retirement solution that allows you to make contributions through payroll deductions and invest those funds in stocks, bonds and mutual funds – just like with an IRA. But the primary advantage a 401(k) offers versus an IRA is that it enables you to save three times more than an IRA does. Read more about contribution limits here.
First things first – choose a provider.
Once you’ve decided to establish a 401(k) plan for your small business, the next step is to find a plan provider. While there are many different types of 401(k) plans available, most small business owners will find that they need one that offers both traditional and Roth options. You should also choose a provider that offers low fees and has great customer service.
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Next, select a plan design.
Choose one that best suits your business. To do so, consider the following:
- Cost: How much does the plan cost to set up and maintain? Some plans charge an annual fee based on assets under management. Others may charge a flat rate per participant and consider factors like an employer match.
- Time: How much work will it take for your small business to administer the plan? Will you need help from an outside administrator?
- Flexibility: Does this plan allow employees flexibility in how they invest their money within the plan? For example, some plans allow participants access only through mutual funds, while others let them pick stocks individually.
Distribute your plan documents.
Once you have your plan documents in place, it’s time to distribute them to your employees. The plan administrator is responsible for distributing documents to all participants and beneficiaries. These documents will include:
- A copy of the summary plan description (SPD)
- Fee disclosure
- QDIA notice
- Safe Harbor if applicable
- Auto Enrollment if applicable
Encourage employees to participate.
Increasing employee participation in your 401(k) helps your company’s overall 401(k) perform better (meaning more money for you, more money for them). Depending on the type of plan you choose, increasing employee participation can help ensure compliance with certain requirements. Besides, a 401(k) does little benefit if it’s sitting idle. Engaging all employees to maximize this benefit not only attracts top talent but also helps with talent job satisfaction and retention too.
PSA: Choosing a 401(k) plan for your small business will be easier (and less expensive) if you do it right the first time
Our pro tips:
- Don’t be afraid to ask questions. Every detail of your plan is important and can affect how your plan is serviced.
- Shop around (within reason).There are many different providers out there offering similar services at different prices depending on what kind of business owner (or employee) you are. Be sure you find a plan that’s right for you and your small business.
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.