Start-up 401(k) Plans

For small business owners, retirement planning for employees may seem like a daunting task. There are many different types of retirement plans, with various legal requirements and regulations. Our team works closely with you to determine which type best suits both your immediate and long-term goals — it’s not “one size fits all.” Also using information from various sources including the IRS and the Department of Labor, we aim to demystify the process.

Investing in your employees’ future is a smart move for any business. By offering retirement plans such as a traditional 401(k), profit-sharing plan, or another defined-contribution plan, you not only provide security and peace of mind for your team, but also create a more comprehensive and attractive benefits package. It’s worth noting that some states, such as Oregon, Illinois, California, and many others, now have legislation requiring employers to offer paycheck deductions for retirement savings.

Additionally, offering an automatic enrollment 401(k) plan can simplify the retirement savings process for your employees. Once eligible, every employee will be automatically enrolled and can defer a set percentage of their paycheck into their 401(k) plan each pay period. This option can provide potential tax benefits while growing a retirement nest egg. Offering a matching contribution will also help your employees’ save more and faster.

Advantages of Offering a 401(k) Plan

  • Invest in your employees’ future by providing them with the opportunity to enroll in a 401(k) plan. This valuable benefit empowers them to take the crucial first step towards retirement readiness, giving them peace of mind for years to come.

    • Attract and Retain Employees

      In today’s job market, potential employees are seeking more than just a paycheck. They want a competitive salary, reliable healthcare coverage, and a retirement plan that meets their needs. In fact, 70% of employees surveyed in the Employee Benefits Trend Study (March 2016) consider a 401(k) plan or other retirement plan to be a “must-have” benefit. Providing access to a well-designed retirement plan can attract and retain motivated, productive workers, ultimately strengthening your business’s workforce with the financial benefits they value.

    • Assist Employees in Saving for Retirement

      Financial stress is a major burden for employees, with money troubles cited as a top source of anxiety by the American Psychological Association (Stress in America, February 2015). Many workers are struggling to make ends meet and have little in the way of retirement savings or emergency funds. To attract and retain top talent, companies must offer a retirement plan that helps employees save for the future and feel confident in their financial decisions. By doing so, businesses can have a positive impact on the financial well-being of their workforce.

    • Potential Tax Saving Advantages of a 401(k) Plan

      Retirement plans offer more than just financial benefits for employees; they also offer potential tax savings for business owners. By offering a 401(k) plan, you may be eligible for a tax credit of up to $500 for the first three years of the plan’s startup administrative costs, as well as potential tax deductions for matching contributions. Additionally, employees who make pre-tax 401k deferrals can lower their taxable income and may even be eligible for their own tax credit. It’s a win-win situation for both employers and employees. The IRS rules and limits can be found here.

    • A Financial Wellness Program Can Help Increase Employee Productivity

      Offering a strong and affordable retirement plan is the first step towards promoting financial wellness among your employees. When employees are weighed down by financial stress, they tend to be less productive, which can lead to a decrease in productivity and an increase in costs for employers. According to a recent survey by PricewaterhouseCoopers (2017), almost one-third of all employees are distracted by personal financial issues while at work, with nearly half of that group spending three or more hours each week handling personal finances on the job. Furthermore, employees who are struggling financially are twice as likely to miss work due to their financial woes, and more likely to experience health issues caused by financial stress.

      By offering a 401(k) plan, companies can help workers take the first step towards getting retirement ready and preparing for the future. When employees are secure about their financial well-being, they will be less stressed and more productive.

Types of Start-up 401(k) Plans

  • In today’s competitive job market, offering a 401(k) plan can help set your company apart from others. According to the Labor Department’s Job Openings and Labor Turnover Survey, there are almost twice as many job openings as there are workers looking for jobs. By providing appealing benefits, you can attract top talent to your organization.

    Small businesses can provide retirement benefits to their employees, with 58% of workers at companies with fewer than 100 employees having access to such plans, according to data from the U.S. Bureau of Labor Statistics. These plans hold assets totaling around $7.3 trillion in the first quarter of 2022, as per the Investment Company Institute.

    By offering retirement benefits to your employees, you not only benefit them but also contribute to the well-being of the U.S. economy. This guide can provide small business owners with the necessary information to take part in this important initiative.

    • 401(k)

      A traditional 401(k) plan offers employees the opportunity to defer a portion of their pre-tax earnings into an account that they can customize based on their investment preferences. Employers can choose to contribute a fixed amount to employees’ retirement accounts or match a percentage of their contributions. Additionally, a profit-sharing retirement plan enables employers to adjust contributions yearly based on business performance.

      Upon reaching the age of 59 ½, account holders of a traditional 401(k) plan can withdraw funds from their account without any penalty. However, it’s important to note that these withdrawals are taxed similar to income. The investments in these plans can grow over many years, providing a solid foundation for retirement savings.

      It’s worth noting that there are other options available besides the traditional 401(k) plan.

    • Roth 401(k)

      A Roth 401(k) plan offers employees the unique opportunity to contribute a percentage of their after-tax earnings, which can grow tax-free and be withdrawn without any penalties after reaching the age of 59 ½. This is an excellent option for employees who want to optimize their retirement savings and minimize their tax burden.

    • Profit-Sharing

      A profit-sharing 401(k) plan provides employees with the opportunity to defer a portion of their earnings and make retirement contributions. At the same time, employers can make contributions to employees’ plans each year, including the ability to make substantial contributions.

    • Safe Harbor 401(k)

      Employers can consider a safe harbor 401(k) plan, which requires a minimum 3% contribution to all participants, or specified matching contributions of at least 4% from employers. This type of plan can help ensure fairness and equity in the company’s benefit programs, as it allows employers to pass most mandatory non-discrimination testing, which otherwise would need to be completed annually.

Key Considerations for Establishing a 401(k) Plan

  • Setting up a 401(k) plan requires some essential documentation, including a written plan document, a trust to hold the plan’s assets, a system for keeping plan records, and informational resources for eligible employees. Depending on your preference, you can either handle it yourself or with the help of professionals. Either way, we’ve got you covered, to take you through the process step by step.

    As part of the process, employers must provide employees with a summary plan description, outlining the plan’s inner workings, potential employer matching, and other essential plan details. Additionally, employers can share why they chose a specific retirement plan for their employees and the perceived benefits over other options.

    • How to pick a service provider

      When it comes to managing a retirement account, employers must take on fiduciary responsibility and potential liability. To limit this liability, some employers opt to hire a service provider to handle operations. However, it’s important to note that bringing on a service provider doesn’t completely free the company from all liability.

      To choose a reputable 401(k) service provider, the federal government recommends considering the firm’s partners, financial stability, and assets under management. By taking these factors into account, employers can make an informed decision and ensure the well-being of their employees’ retirement savings.

      It’s important to understand how the service provider conducts business. Consider asking questions such as, “Will the firm handle selecting and managing investments for the plan? Who are the professionals handling the plan? Have they been involved in any recent litigation?” Being informed will help you make an informed decision and ensure the well-being of your employees’ retirement savings.

      It is advisable for companies to monitor the financial institution or retirement benefit professional hired throughout the duration of the contract.

    • What to report to the government

      Setting up a 401(k) retirement plan for employees has the added benefit of company contributions being tax-deductible from business income. Moreover, the funds in these plans can grow tax-deferred, making it a smart investment for your business and your employees’ futures.

      It’s important to note that, even with a smaller plan, businesses are still required to report to the government through an IRS document called Form 5500. For businesses with fewer than 100 employees enrolled in a 401(k) plan, the specific form required is Form 5500-SF. This form requires basic information about the plan, including the number of people using it, as well as details about its assets, liabilities, and income. If your small business plan only has one person enrolled, you should file a Form 5500-EZ. It may seem like a hassle, but reporting is necessary to ensure compliance and the long-term success of your business and your employees’ futures.

      As part of maintaining compliance with the IRS, some employers may need to undergo annual testing to ensure fairness in their retirement plan. This includes avoiding favoritism towards higher-paid employees and discrimination against lower-paid employees. To help with this process, the IRS provides a helpful checklist for employers to follow.

Plan Design & Administration

Maximizing your retirement plan’s performance is crucial to our mutual success. As expert plan administrators, we develop tailored solutions that not only benefit you as a business owner but also benefit your employees at every stage of your business growth. From regulatory compliance to ongoing support, our team is committed to making the complex process of retirement planning easy and affordable for you. At TRA, we take pride in building long-term relationships with our clients, and contributing to their success is our top priority. We also offer 3(16) administration to help prudently manage the plan and relieve you, the employer, of daily fiduciary responsibilities.


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