Five Things to Know Before Setting Up Your First 401(k) Plan

By Stuart Robertson

So, you’re running your business, and you now have the funding or hit that financial milestone that allows you to add 401(k) benefits for you and your employees. That's awesome! You may have experience with a 401(k) account as an employee when you worked for a different company. Offering a 401(k) plan for your business is quite different.

401(k) plans must be run in the best interest of your employees and requires some decisions on plan design, how to oversee the investment roster, and what services and features can make it as hassle-free as possible for your business while ensuring you receive the tax credits, deductions and saving benefits.

There are five main things to ensure you have perspective and then you can get up and running with a plan that meets, and we hope, exceeds your expectations.

  1. Plan Design: 401(k) plans have lots of flexibility, features, and options. You’ll want to get familiar with the top plan designs, so you know what’s right for your business. Our web page “What 401(k) Plan Design is Best for Your Business” provides a nice overview that takes a few minutes to read.
  2. Services: You’ll want to be aware of services you’ll want and ensure the provider you are considering delivers. You will need a solid digital experience supported with recordkeeping services required to offer your plan – the table stakes if you will. However, there is more to it than that. Be it quickly answering your employee questions and providing education or investment management oversight and plan compliance support, having an understanding of these items are essential to get what you need. This blog provides a quick overview with a chart of the services to know and what to avoid, “What 401(k) Plan Services Your Business Will Need and Value.”
  3. Your 401(k) Responsibilities and Risk Management: 401(k) plans require business owners and others that help run your 401(k) benefits to take on duties and careful oversight. While many 401(k) providers do not take on a “fiduciary” role to support you and manage the work and risks, some do. This can be great for those that either don’t want to support this internally or are not investment experts. In general, if the provide delivers ERISA 3(38) Advisory services, it can make a lot of this easier. This page provides deeper insights: “Understanding the Roles of a Fiduciary.”
  4. Pricing: You always want to get a great value for your money. Many employers will get focused on the setup and monthly or quarterly admin charge their business will pay. There are several low-cost providers out there now. Make sure they offer the services you want and know that a few hundred dollars difference may not be that big of a deal if the fund expenses in your plan will be over 1% (you want fund expenses well under 1%). The fund expenses and other related investment expenses that each employee pays (including owners) from their account may cost you and your employees a heck of lot more over your career. Read the “Total Cost of Ownership” for a deeper understanding and know what will matter most to you.
  5. Setting Up Your Plan: Now you’re ready to get going. What should you expect and what will you need to get up and running? There are really six steps to get your plan in place. This overview will give you good perspective: “How to Set Up a 401(k) Plan for Your Business.” When you purchase you will need banking information and your EIN. As you install the plan, you will need to have employee info ready to upload. A good provider will hold your hand through a streamlined digital purchase process and get your plan up and running.

Lastly, depending on your payroll provider, you may be able to integrate or at minimum do simple uploads each payroll to help put your plan on autopilot. You will also want to be aware of how 401(k) tax credits and deductions work and make you sure you get them. Businesses of 1-100 employees can qualify for up to $15,000 in tax credits over the first three years of their first plan. Employer matching contributions if you offer are often 100% deductible. Have more questions? Just email us at: 401kpros@sb401k.com or give us a call at 1.800.431.7934 option 1.

Wishing you great success and happy saving!

Meet the Author

Our low-cost 401k plans are easy to setup online and are supported by our 401k advisors and specialists. ShareBuilder 401k serves small business and medium-sized companies, as well as the self-employed. We offer Roth 401k, Safe Harbor 401k, Traditional 401k, and Solo 401k options. Your 401k plan is paired with investment management expertise and employee education to help you save more.