Some of the responsibilities you have as an employer is setting up a 401k plan, whether running a large or small business. A 401k plan for your employees is an excellent compensation package, and there are various types of 401k plans you can choose to work with.
This article covers a step-by-step guide on how to set up a 401k plan for small businesses.
1. Decide on who will establish and maintain the plan
As an employer, you need to decide who will set up the plan. You might want to set it up on your own or ask a professional or financial institution to do so. These institutions could either be a mutual fund provider or an insurance company.
If you set up the plan yourself and maintain it, it will be more cost-effective but can be time-consuming. It is advisable to weigh the pros and cons of seeking the assistance of a professional or financial institution. In most cases, it suits you better to delegate such duties to expert financial advisors since they experienced in doing it.
2. Have a written plan document
If you plan to establish and handle this personally, you should have a written document that contains all about your plan. If a financial institution or professional is developing and managing the policy on your behalf, this should also include a written plan.
This document is a legally binding document that contains all the terms and conditions of your 401k plan. So if you do not fully understand the terms, it is best to consult specialists who would assist you in identifying the inclusions of the plan.
The best 401k providers for small business should educate you on the proposed plan. This document should contain the type of 401k plan you will be working with and its features (contribution amounts and employee eligibility).
3. Set up a trust for assets and get a reliable recordkeeping system
Setting up a trust for the plan's assets ensures that the funds in the 401k account are used only by its beneficiaries. You need a trustee that would handle contributions, distributions, and structure investments.
Also, you need to get a reliable recordkeeping system to monitor the contributions, gains, and losses, plan investments, distributions as well as general expenditures. If you want to outsource the handling of the 401k to a financial institution, they will manage the recordkeeping. Furthermore, systematic recordkeeping is crucial for annual financial reports.
4. Decide on the employees that are eligible for the plan and dispense the information to them
Your employees need to know the plan's information, such as benefits, rights, and features. Create a summary that would contain information on employment eligibility and distributions, contributions.
Keep in mind that starting a 401k plan for small businesses has its responsibilities, but the benefits are worth it. Seeking the assistance of a reliable financial advisor will expedite the process and preparation of necessary documents.