The Process of Setting Up a 401(k) Plan For Your Business.

Why set up a 401k for your business? The 401(k) plan is a type of retirement plan that offers the maximum contribution among defined contribution retirement plans. It offers an employee driven benefit with various options, designs, and versatility of platforms and investments. A business may choose to set up a 401(k) plan to help the owner and employees save for retirement in a tax efficient way. A business owner who sets up a retirement plan becomes the Plan Sponsor and may become a fiduciary to the plan. Plan Sponsors and other fiduciaries have responsibility to protect the interests of the workers and retirees in their retirement plans. Trustees and the Plan Sponsor carry fiduciary liability due to ERISA regulations. It’s important to understand the rules involved and work with experienced professionals who can help decrease overall the plan sponsor's fiduciary liability of the plan.

1. Find A Qualified Third-Party Administrator Consultant Or Experienced Financial Advisor: A Third-Party Administrator (TPA) consultant or a financial advisor experienced with plans will help you figure out which type of retirement plan is the best fit for your company. By working with a TPA or trusted advisor with experience in qualified plans, they can help coordinate between all parties associated with the plan. Having an experienced professional can give you additional insights on recordkeeper selection and overall plan design.

2. Determine Company Goals: By determining your company’s goals, the 401(k) design can be better designed for your business and its employees.

3. Determine Employee Benefits Levels: The level of benefit provided by each company through a 401(k) plan can vary.

4. Creating A Plan Document: The administrator you choose will create a plan document for the 401(k). A 401(k) plan document governs the retirement plan's features and day-to-day operations. The business owner does have some discretion in changing features of the plan document such as eligibility, enrollment dates, investments allowed, vesting and more. The TPA will help to provide insight in best design practices suitable for your business.

5. Choose Where to Hold the Plan: Commonly 401(k) plans are held at Recordkeepers and are known as participant directed 401(k) plans. The Recordkeepers main objective is to track assets in retirement plans for participant accounts. They may also have additional benefits such as retirement savings calculators and employee education tools. For smaller plans, you might choose to have the plan held at a brokerage or financial services company to potentially decrease overall expenses. Your financial advisor or TPA will help you choose the best platform for your company.

6. Selecting Investments: Your plan document design will outline the parameters for selecting investments available for your employees. Recordkeepers will traditionally use mutual funds or collective investment funds and will allow you to create a menu of available funds for your employees to select from. A fund analysis strategy may be enforced by hiring a experienced 3(21)-investment fiduciary or 3(38) discretionary fiduciary to help decrease fiduciary liability.

7. Education Meetings: Plan Sponsors and other fiduciaries have responsibility to educate and inform employees the benefits of the 401(k) plan. Financial advisors and certain recordkeepers may offer education and enrollment meetings as part of their services.

8. Annual Filings & Notices: In addition to the disclosure documents that provide information to participants, plans must also report certain information to government entities. Plans are required to file an annual return/report with the Federal government. This will report will either be a Form 5500 or Form 5500-EZ and is usually done by your administrator. Other disclosures will need to be given outside the scope of this guide.

a. Most one-participant plans with total assets of $250,000 or less are exempt from the annual filing requirement.

b. A final return/report must be filed when a plan is terminated regardless of the value of the plan’s assets.

c. Form 1099-R is given to both the IRS and recipients of distributions from the plan during the year. It is used to report distributions (including rollovers) from a retirement plan.

If you are interested in setting up a 401(k) plan for your business or having your current plan reviewed, please reach out to me below:

On my personal cell at 321-947-8218 or my email at [email protected]