There is a sophisticated, multi-step process to roll out a 401(k) plan for your small business. With modern advances in payroll and record keeping, it is easier than ever to do so. Offering a 401(k) shows employees that you value them and are committed to their continued employment. This helps business owners to retain the top talent even in a competitive market. There are numerous additional advantages of setting up a 401(k) for your business. For example, you may benefit from an annual tax credit. Employers can receive up to $500 in tax credits for the first three years of the plan. Providing a 401(k) retirement plan is beneficial to employees and business owners alike. Continue reading to learn how to roll out a 401(k) small business plan.
Choose A Plan Design
The first step to start a 401(k) plan for your business is to choose a plan design. The main difference between each plan is how and when employers make contributions to their employees’ funds. Business owners must choose the plan framework that works best for their business model. One of the most flexible designs is a standard profit sharing 401(k). With this type of 401(k), you can make outright contributions to plans or match contributions based on employee deferment. This plan also gives employers the option not to contribute at all to their employees’ funds. This option is particularly beneficial for employers who want to offer all level employees some sort of retirement plan. The first step in rolling out a 401(k) for your small business is to choose a plan design.
Arrange A Trust
Next, employers must arrange a trust for the plan’s assets. This is a requirement for setting up any 401(k) plan. A trust will guarantee that the funds you and your employees set aside are only used by the participants and their beneficiaries. In order to arrange a trust, select a trustee. Choose a person with the necessary skills to fulfill this duty. You may want to hire a third party trustee to fulfill this duty. Alternatively, you can assign this role to a member of your payroll or finance department. Either way, your trustee should be well-versed in the investment market. They will handle contributions, plan investments, and the distribution of funds. Appointing a trustee to your arranged trust is the next step necessary for rolling out a 401(k) small business plan.
Build The Fund Lineup
Once your trustee is in place, it is time to build your fund lineup. This is, arguably, the most important part of building your 401(k) plan. A fund lineup is the menu of investment options available to plan participants. Based on the funds that are offered, your employees choose where to invest. When you choose the best funds, your 401(k) accounts grow. Adversely, if you have risky or unnecessarily expensive mutual funds in this portfolio, accounts are limited. It is beneficial for business owners to hire an advisor to choose funds for their 401(k) plans. An advisor will be well-versed in the best practices for building a fund lineup. They will also assume legal responsibility for any potentially poor-performing investments. Wven more, they can help you manage the costs of small business 401(k)s. Build a fund lineup to provide your employees with their investment options.
Choose A Record Keeper
Choose a record keeper to keep track of your 401(k) accounts. This will allow you to track employee contributions and current plans accurately. Your record keeper handles logging contributions, tracking investments, and processing 401(k) loans and withdrawals. It is helpful to integrate 401(k) management with your existing payroll systems. Payroll integrations automatically deposit employee contributions and track employee eligibility. If you have an existing contract with a payroll vendor, they can easily manage your 401(k) data to ensure the timely investment of all contributions. For in-house payroll teams, use a software that integrates 401(k) management directly into your payroll system. Choose a record keeper to manage all of the data associated with your 401(k) accounts.
Distribute Information To Employees.
The last step in your 401(k) small business roll out is to make an employee announcement. Send an email to your employees announcing the enrollment details and how they can access their account. Prepare a summary plan description that tells employees what they should expect out of the plan. Contain information about eligibility, contributions, distributions, and claims. You can also schedule a meeting to educate your staff about their 401(k) benefits and field and questions. Disclose information such as the plan’s benefits, features and employee’s rights. Once your plan is in place, distribute all the relevant 401(k) information to your employees.
Small business owners are interested in how to roll out a 401(k) retirement plan. The first step is to choose a plan design that benefits your business model. Next, arrange a trust for your assets and appoint a trustee to manage it. Build a fund lineup of investment options for plan participants. Choose a record keeper to track and manage all the accounts. Then, distribute information to employees so they can access their accounts. Consider the points mentioned above to learn how to roll out a 401(k) small business plan.