If you’re a small business looking into setting up a 401(k) for your staff, finding the right retirement plan and the partner may seem like a daunting endeavor at first. However, deciding to start a 401(k) plan is a huge step forward in providing better benefits to your employees, and they’ll appreciate that you are invested in their long-term success and future.
From working with individuals to businesses like yours, The Ryding Company has provided savvy administrative assistance, consulting, and compliance for retirement planning that yields the best results for each and every client. We’ve worked with over 2,500 business owners and facilitated over 1,000 ERISA retirement plans, and a high percentage of our clients have remained with us since we opened our doors in 1975.
Opening up a 401(k) plan is just the beginning of a bright future for you and your employees. In this blog, we break down the key steps involved in setting up a 401(k) plan for your business so the process is more manageable, efficient, and beneficial for everyone involved. Let’s dive in!
Tips For Small Businesses That Want To Set Up 401(k) Retirement Plans
- Merge Your Payroll System With Your Recordkeeper
- Be Sure Your 401(k) Payroll Integration Can Be Upgraded As Your Business Grows
- Plan For Annual 401(k) Audits
- Choose A Partner That Can Help You Pass Non-Discrimination Testing
How To Set Up A 401(k) For Your Small BusinessWhen setting up a 401(k) plan, you will want to choose the best option that maximizes the value for you and your staff. Choosing the right retirement plan is as easy as 3 steps! However, there are many factors to consider at each stage of the process. Let’s begin!
» No. 1: Clearly Outline Why You’re Offering A Small Business 401(k)Before even looking at 401(k) retirement plan options for your business and researching potential partners, you will want to be clear about the reasons why you’re offering retirement planning. This will allow you to choose the 401(k) plan that suits the needs and goals of you and your employees. The following are some of the main reasons why more and more business owners are offering 401(k) plans to their staff:
- Boosting Savings + Tax Benefits: Did you know that 401(k) plans are effective at building wealth for both you and key employees? This is because 401(k) funds are protected from income taxes. For businesses, in particular, meeting the annual contribution limit of $56,000 increases your retirement tax benefits significantly, so it’s important, in this case, to choose a plan that will help your business optimize contributions and savings.
- Reducing Turnover + Attracting Talent: Recent studies have found that 18.2% of employees evaluate a current or potential employer’s retirement plan offering as very important when determining whether or not to stay with a company or work for a competitor. These employees are also 2.5 times more likely to stay with a current employer than those who don’t find retirement planning as important. Needless to say, in order to keep valuable labor and talent, your business ought to offer valuable benefits.
- Doing The Right Thing: As of 2019, saving for retirement funds is the #1 financial burden for working individuals and households in the United States. There are currently 38 million working-age households in America that have zero retirement savings–and life expectancy is only increasing due to medical and technological advancements. As an employer, starting a 401(k) plan program for your business can reduce overall financial stress for your staff, which in turn presents the opportunity to increase productivity and quality of life among your employees.
» No. 2: Find The Right Partner(s) For Your Small Business Retirement PlanOnce you’ve thoroughly identified why your business is adopting a 401(k) retirement plan, your business is ready to start reaching out to local partners to begin the process. Keep in mind that there are different types of financial advisors and partners that can help you along your retirement planning journey. These are some of the most common 401(k) providers:
- 401(k) Recordkeepers: In layman’s terms a 401(k) recordkeeper is a financial professional that acts as a bookkeeper for your business’ retirement plan. They evaluate and track who members of the plan, the investments they own, as well as the money going in and out of the plan. Recordkeepers are essential in running (and growing) a 401(k) account.
- Payroll Systems: In order to reduce the margin of error and ensure overall compliance, payroll systems play a huge role when you sign up for a retirement plan. More often than not, payroll is submitted manually to recordkeepers who will distribute the appropriate funds into employee retirement accounts. However, there are payroll systems that are synchronized with 401(k) plans and automatically distribute this money. Your business will want to consider a modern payroll system that incorporates your 401(k) plan for overall efficiency and up-time.
- Third-Party Administrators (TPAs): Keep in mind that a 401(k) plan is comprised of multiple documents and complex administrative tasks. These days, most recordkeeping companies will act as a TPA to provide a one-stop, comprehensive solution that takes care of the following paperwork and more:
- Plan Documents
- Form 5500 Preparation
- Profit Sharing Calculators
- IRS Non-Discrimination Testing
- 401(k) Advisors: These types of partners are financial advisors with 401(k) expertise. More often than not, they are most adept at doing all of the initial legwork in setting up a 401(k) retirement plan for businesses. A savvy 401(k) advisor will also be able to assist you with the following:
- Monitoring and growing the best cost-effective line-up of mutual funds and other beneficial investments
- Protecting your business from costly lawsuits by assuming legal liability for your financial investments
- Making sure employee funds are properly invested
- Completing administrative work and taking on legal responsibility for 401(k) plan administration
- Continually gauge your retirement plan, keeping fees low as your assets and employee count grow
» No. 3: Build Your Small Business Retirement PlanThere are two main stages when creating a 401(k) plan that’s tailored to the needs of your business and employees. Let’s review them!
Designing Your Retirement PlanJust like any business, every 401(k) plan is unique. When building out your retirement plan, you will want to choose rules and features that will help your business and employees meet your set financial goals. Some of these options include:
- Employer Contributions
- Vesting Schedules For Employer Contributions
- Eligibility To Join The 401(k) Plan
- Roth Contributions
- Automatic Enrollment
- IRS Safe Harbor 401(k) Provisions (exempting you from certain compliance tests that may limit contributions for small business owners or key employees)