How to Set Up
a 401(k)

Have you been thinking about how a 401(k) plan can help your business? You’re in good company; 65% of small business employers believe a 401(k) is important for attracting and retaining talent, and each one of those employers has, at some point, started right where you are now.[1] But to those who haven’t yet entered 401(k) management, it can feel a little overwhelming. What kind of service provider and plan should you pick? Where do you start your search?

There are a few key steps you’ll take to build the right retirement benefit for your employees. From choosing the right adviser, to identifying your goals for your plan, to giving employees tools they’ll need to make enrollment day a success, here’s a step-by-step guide to help make setting up a 401(k) as easy as possible.

1. Find a Good 401(k) Adviser

The first step to starting your 401(k) plan is to choose an adviser that is a good fit for your business. Since many financial institutions, payroll providers, insurance brokers, and wealth management firms all offer retirement support, small businesses will have advisers galore to compare. But what distinguishes a great adviser from a good one? Look for an adviser who will act as a fiduciary—sharing in your legal responsibility to manage your 401(k) plan with your employees’ best interests in mind—and managing which investment options should be included in your 401(k) fund lineup and which should not.

It’s also important that you find an adviser who will offer educational resources and support to your employees. Additionally, the best advisers are ones who will take on a lot of the administrative burden of running your plan so you don’t have to. Keep in mind as you compare advisers that you’ll pay different fees depending on the level of service you and your employees receive, so make sure to compare advisers at similar levels of service for a clear cost comparison.

Once you’ve chosen an adviser, they will help you select the rest of the service providers you’ll need for your plan. This includes a third party administrator, who will handle many of the day-to-day tasks in administering your plan, and a recordkeeper, who is responsible for documenting who is enrolled in your plan, what assets or investments they own, and how money flows in and out of the plan.

2. Identify Your Goals for the 401(k)

There are many reasons for a business to start a 401(k) plan. Before you begin to build your plan, it’s important that you clearly identify your specific goals for offering a 401(k). These might include:

  •      Personal Savings: As a business owner, you’re interested in saving more money, and you know that a 401(k) can help you save more for retirement.
  •      Tax Benefits: Your business has become more and more profitable, and you know that a 401(k) can help you lower your taxable income.
  •      Retirement Readiness: You want your employees to be prepared for retirement when the time comes, and you want to empower them with educational resources and tools.
  •      Competitive Hiring: You need to attract and retain talent in a competitive market, and good 401(k) benefits can mean landing your next key employee—or losing them to the competition.

There are many plan options you can choose to include in your plan to focus on different goals like employee engagement or maximized tax benefits.

3. Start the implementation process

The next step is to finalize the finer details and launch the new plan. There are a few final decisions to make and steps to take to make everything official:

  1. Collect employee data. In order to make sure employees qualify for enrollment in the new plan, you’ll need to prepare an accurate census of employee information, including names, birth dates, hiring dates, salary information, and more.
  2. Identify a Plan Manager. Someone at your business—maybe it’s an HR professional—will need to be named as the official “Plan Manager” for your plan. In addition to the business owner acting as a fiduciary, the person chosen as Plan Manager may also have fiduciary responsibilities. It’ll be their job to work with your adviser and other providers to facilitate plan administration.
  3. Determine the new plan’s start date. You will also need to decide when you want to roll out the plan and allow employees to enroll.
  4. Set up payroll. Finally, you’ll need to make sure that your payroll system is set up to handle employee deferrals according to your plan design.

With all the t’s crossed and i’s dotted, all that’s left is preparing for a successful enrollment day and making sure that each of your employees is excited about their new retirement plan.

4. Kick Start Employee Participation

A good adviser will help you make sure that on day one of your plan, your employees are able to enroll in the plan, find answers to their questions about saving money and investing, and understand how to use their 401(k) plan to help them reach their own goals for retirement. Talk to your adviser about offering on-site support for enrollment day, including group presentations about the workings of your 401(k) plan, and one-on-one sessions for interested employees to share their private questions and concerns.

Setting up your new 401(k) is all about building a retirement plan your employees will use and appreciate, and aligning that plan with the goals for your business. As you review your adviser options and consider your needs, remember that by offering your new 401(k), you’re giving your employees a new chance to prepare for the future as they work for you today.

 

[1] 2017 Transamerica Retirement Survey, page 35

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