How to Evaluate the right 401(k) plan for your business
Choosing a 401(k) plan for your company can be a complex process, but taking the time to do it right can help ensure that your employees have access to the retirement benefits they need. Studies have found that 80% of employees said that having a retirement plan was an important factor in deciding whether to take a job or stay with their current employer. In this article, we’ll discuss the two main options, as well as effective strategies to find the right retirement plan for your business.
Traditional 401(k)s:
In a traditional 401(k) plan, employees make contributions to the plan through payroll deductions. Employers may choose to offer a matching contribution, but they are not required to do so. The contributions and investment earnings grow tax-free until they are withdrawn. Traditional 401(k) plans are subject to annual non-discrimination tests to ensure that contributions are not disproportionately benefiting highly compensated employees.
Safe Harbor 401(k)s:
Safe harbor 401(k) plans are similar to traditional 401(k) plans but offer certain benefits that can simplify plan administration and reduce the risk of non-compliance with tax laws. To qualify as a safe harbor 401(k) plan, employers must make either a matching contribution or a non-elective contribution to all eligible employees. Safe harbor 401(k) plans are exempt from annual non-discrimination testing, which can make them a good option for employers who want to simplify their plan administration.
The main difference between traditional and safe harbor 401(k)s is the requirements for employer contributions and the exemptions from non-discrimination testing. Employers should carefully consider the pros and cons of each type of plan and choose the one that best meets their needs and the needs of their employees.
6 steps that companies can follow to select the right retirement plan:
Determine your goals: Consider factors such as the fund expense ratios, investment options, ease of administration, and level of employee participation.
Research your options: Understand the differences between a traditional 401(k)s and a safe harbor 401(k)s, as well as and automatic enrollment plans. Consider the pros and cons of each type of plan to determine which is best for your company.
Evaluate providers: Choose a 401(k) plan provider that offers a wide range of investment options and has a good reputation for customer service. Consider the fees and services provided by each provider to determine the best fit for your company.
Review the plan's features: Develop a full understand of the investment options, employer matching, vesting schedule, and loan provisions. Consider how each feature fits into your company's overall benefits package and the goals you have for your 401(k) plan.
Communicate with employees: Be sure to clearly communicate the plan's features and investment options to your employees. Provide educational materials and resources to help employees understand the importance of saving for retirement and make informed decisions about their investments.
Monitor the plan regularly: Regularly monitor the performance of your 401(k) plan to ensure that it is meeting your goals and the needs of your employees. Consider making changes to the plan if necessary to ensure its continued success.
Professional Employer Organization (PEO) administering your 401k:
Having your PEO handle the administration of your retirement plan has several advantages. Here are just a few:
Compliance support: PEOs can provide support to ensure that your 401k plan meets all the legal requirements and regulations, reducing the risk of penalties or lawsuits. They will also handle filing requirements such as the form 5500.
Cost savings: PEOs may have the purchasing power to negotiate better prices and terms with providers, potentially reducing the costs associated with administering a 401k plan.
Ease of administration: PEOs handle the administrative tasks associated with the 401k plan, freeing up time and resources for the employer.
Access to a wider range of investment options: PEOs can offer a broader range of investment options compared to an individual employer, giving employees more choice in how to save for their retirement.
Improved employee engagement: PEOs can provide resources and education to employees to help them understand and make the most of their 401k plan, potentially leading to improved employee engagement and participation.
By taking the time to considering these options, you can ensure that you choose a plan that meets the needs of your employees and your business.
If you’re interested in more employee-centric strategies, please reach out to us at Luminescent. Learn how our free high-touch business consulting service will tailor the perfect fit! www.goluminescent.com
