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As a business owner, one of the key decisions you may face is whether or not to offer a 401(k) retirement plan to your employees. This can be an overwhelming task, especially if it's your first time considering such a benefit for your workforce.
With the ever-changing landscape of retirement plans and complex regulations, it's crucial to approach this decision with careful consideration and planning. To offer some formal guidance, a panel of Forbes Finance Council members shares essential tips for business clients who are contemplating offering a 401(k) option to their employees for the first time.
1. Pick A Comprehensive Plan
Absolutely do it if you can afford it! Try to pick a plan that has easy-to-understand investing options—a 401(k) is only beneficial if an employee knows how to invest it. Modern-day robo-advisors or traditional target funds are the simplest investment options for the everyday person, so look for plans that offer one or both of these. - Crissi Cole, Penny Finance
2. Designate An In-House Point Person
While the plan is a great benefit for business owners and staff, many new entrants into the 401(k) space are overwhelmed by the start-up and administrative needs of the plan. To assist with that, identify a member of the company that is ready to learn and take ownership of the start-up process and once implemented, process the contributions to the plan along with any required company matching. - Brian Niksa, Capstone Financial Advisors, Inc.
3. Understand The Associated Costs
Carefully consider the costs and administrative requirements involved. It's essential to evaluate the fees associated with the plan, as well as the investment options available to employees. Additionally, the business should determine the level of administrative support it will need to provide to ensure the plan is managed correctly and compliant with regulations. - Ash Shah, Impex Capital Group
4. Start With A Low Matching Percentage
From the outset, carefully consider the percentage you are willing to match 401(k) contributions. Start at a low percentage (e.g. matching dollar-for-dollar for the first 2%), and you can always increase the matching level in future years. Avoid ever needing to reduce the matching percentage, as that will feel like a loss to employees. - Sean Brown, YCharts
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5. Consider The Cost-Benefit Analysis
When contemplating offering a 401(k) option to employees, the overall architecture needs to consider the cost-benefit analysis with the employee in mind first. This type of product should be a retention and long-term growth tool to best serve the employee. When looking at an employer contribution match, along with other options within the plan, aim to offset potential future replacement costs. - Kacey Butcher, Adaptation Financial
6. Research All Possible Options
My advice to a business client considering offering 401(k) options for the first time would be to thoroughly research their options and consider all factors such as employee eligibility, contribution limits, employer matching contributions, administrative costs and investment selection. Additionally, maintaining compliance with existing rules and monitoring legal developments is also crucial. - Angelo Ciaramello, The Funded Trader
7. Speak With A Financial Advisor
My advice to a business client contemplating offering a 401(k) option to their employees for the first time would be to seek the advice of a financial advisor or retirement plan specialist. Offering a 401(k) plan is a significant decision that requires careful consideration of various factors, such as plan design, administrative costs and fiduciary responsibilities. - Jared Weitz, United Capital Source Inc.
8. Communicate The Benefits Clearly
It's important to communicate clearly with employees about the benefits of the plan and provide education and resources to help them understand how to participate effectively. This can include offering seminars, webinars and other training opportunities, as well as providing regular updates and support to help employees make informed decisions about their retirement savings. - Jose Rodriguez, Got Credit?
9. Choose Your Provider Carefully
Be very careful in picking the entity that is overseeing the plan. Lawsuits, based on the Employee Retirement Income Security Act of 1974, are common when a group of former employees believes that they have paid more than they should on managing these portfolios. While a nice thing to offer; the risks of future litigation may outweigh the retention. - Andrew Schneider, Archetype Capital Partners
10. Evaluate The 'Why'
Carefully evaluate the costs of setting up and administering it and your ability to remain legally compliant. Also, evaluate why you are offering it. In some industries, it might give you an edge in attracting and retaining top talent. In others, it might not matter much to the employees and you might be better off focusing on other benefits such as higher pay, training, PTO and more. - Anar Pitre, Lotus Capital Partners
11. Provide Employees With Financial Education
It is important to educate employees about the benefits of participating in a 401(k) plan and to provide them with resources to help them make informed investment decisions. You should also consider offering employer contributions, such as matching contributions or profit sharing, to incentivize employee participation and to help employees save for retirement. - Sean Frank, Cloud Equity Group
12. Ask Questions And Negotiate Fees
The main thing is to just offer it. It’s great for an employee’s financial future and the company as it grows. Investing in your team goes a long way in their lives, and a 401(k) is a great way to show your team that you have their back. Make sure the company you’re working with is reputable, though, and don’t be afraid to ask questions or negotiate fees. - Joe Camberato, National Business Capital
13. Tie Goals To 401(k) Matching
Employees today expect their employer to offer a 401(k) plan to help them save for their retirement. There are many pluses for the business as well. 401(k) plans are tax-deductible for employers. It makes the business more competitive in the marketplace in attracting and retaining top talent. Employers can also have goals for employees—that when met—will increase their 401(k) match. - Aviva Pinto, Wealthspire Advisors
14. Just Go For It
My advice is to go for it. One of the best decisions our organization made on behalf of our employees was our 401(k) plan. Offering a 401(k) has helped us both attract and retain top talent while helping our valued employees start saving for retirement. Our match and profit sharing rewards our employees' hard work while booking an expense on our P&L. It's a win-win. - Robert Reeder, GlassView
