In addition to paid time off and a competitive salary, a secure 401K boosts morale within a company and motivates its employees. As a result, you get people who want to work for you, improving efficiency and increasing productivity. Consider these three steps to establish a secure 401K that helps employees prepare and save for retirement.
Choose an Automatic Enrollment 401K Plan
Choosing an automatic enrollment 401K plan not only guarantees that there's a high level of participation, but it also makes it easier for you to withhold employees' contributions and select the specific investments for them. With about 30 percent of eligible employees not participating in their employer's retirement plan, it's suggested that automatic enrollment will reduce that rate to lower than 15 percent. This would increase overall retirement savings.
Here are some of the biggest benefits of offering an automatic enrollment 401K plan:
- It attracts and retains talented employees
- It increases participation among both owners/managers and rank-and-file employees
- It authorizes salary deferrals into specific plan investments if employees don't choose their own
- It simplifies the selection of investments that are right for long-term retirement savings
- It encourages employees to start saving for their future
- It provides significant tax advantages to both employers and employees
Institute an Automatic Enrollment 401K Plan
The first step to instituting a company-wide automatic enrollment 401K plan is to decide whether you want to do it yourself or to seek help from a professional or financial institution. This can include a bank, a mutual fund provider, or an insurance company, which will help you institute and maintain the retirement plan. There are four steps you should take to set up and initiate an automatic enrollment 401K plan before doing anything else.
- Draft a written plan document. This document serves as the foundation for outlining your day-to-day operations. Whether you draft it yourself or hire someone externally, you'll be bound by the terms of the plan. Before drafting a written plan document, you'll need to pick the type of automatic enrollment plan best for your company and its employees.
- Set up a trust for the plan's assets. The assets in your automatic enrollment plan have to be held in trust to assure that they're used solely to benefit people who participate and their beneficiaries. The trust has to have one trustee at a minimum to take care of contributions, investments, and distributions. With the financial integrity resting on the shoulders of the trustee, choosing one is one of the most important decisions you'll have to make in this process.
- Start keeping detailed records. Tracking and attributing contributions, investments, earnings and losses, expenses, and distributions are all vital. This will help you prepare the automatic enrollment plan's annual return/report that you have to file with the federal government.
- Give employees plan information. You have to inform eligible employees who participate in the plan about their benefits, features, and rights. They must receive an initial notice before enrolling in the plan each year.
Manage an Automatic Enrollment 401K Plan
Once you've initiated an automatic enrollment plan, you assume specific responsibilities in managing it. Here are the most important elements that you'll need to manage if you haven't hired an external institution to take care of it.
- Investing the contributions
- Fiduciary responsibilities
- Disclosing plan information to participants
- Reporting to government agencies
- Distributing plan benefits
This Department of Labor document provides additional insight as to how small business owners can implement a secure 401K plan. Make sure to thoroughly research and read all the information so you have a full grasp on how to manage your automatic enrollment plan and provide your employees with all the advantages it offers.
In addition to government websites, you'll also want to consult experts in the field like Fisher finance professionals. This will ensure you cover all bases and have the best advice when starting a new 401K.
Are you a small business owner? How has offering a 401K plan helped improve your day-to-day operations?