A Guide to Starting a 401(k) for Your Business

401(k)s are employer-sponsored retirement accounts with flexible options, making them accessible not just for large corporations, but also for small businesses, such as sole proprietorships and S corporations. Fees are often reasonable and balanced by tax advantages, and retirement savings plans can be an important benefit to attract and retain quality talent from a competitive job market. There are multiple approaches for launching a 401(k) program, but the basics of all methods can be broken down into several manageable steps.

1. Review & Compare 401(k) Types
Deciding which 401(k) type is the best fit for your business hinges on variables such as your number of eligible employees, the amount of employer contributions your business is willing to budget and how much flexibility you prefer. Common types of 401(k)s to compare include the Traditional 401(k), Safe Harbor 401(k) and Individual/Solo 401(k).

2. Determine Plan Details
Some details are dependent on the type of plan you select, but others remain the employer’s choice. To shape the most beneficial plan for your business, consider:

• Eligibility: Will all employees be eligible to participate, or will eligibility depend on variables such as age and/or years of service with the company?
• Contribution amount: Will you contribute a specific amount to all employees or match your employees’ contributions? Up to what amount or percentage?
• Vesting: Will employees have immediate ownership of company contributions, or will ownership be earned after a specific amount of time with the company?
• Investing: Will you or the employee choose how to invest the funds? Which types of investments will be available — stocks, bonds, mutual funds, etc.?

3. Select 401(k) Service Providers
401(k) plans are usually supported by four pillars: the plan sponsor (your business), a fiduciary/trustee (to ensure the plan abides by the regulations governing retirement plans), an investment manager and a recordkeeper/third-party administrator (TPA). As the first pillar, the plan sponsor, you will select and monitor one or more service providers to fulfill the other roles. Your service provider(s) can ease the administrative burden and limit liability, as well as help maintain data accuracy, organize required legal testing, manage investments and provide oversight to help your business stay compliant.

Some financial institutions offer assistance with the selection and organization of service providers, so it’s beneficial to talk to your bank about customized services that would best benefit
your business.

When evaluating 401(k) service providers, review:

• Their affiliations, partners, financial conditions and current assets.
• An explanation of how plan assets will be invested and managed.
• If the company will maintain recordkeeping (and has strong data security).
• The company’s insurance for fiduciary liability and cybersecurity/identity theft breaches.
• Their ability to help keep your business compliant.

4. Launch Your 401(k) Plan
With your service provider, you will arrange:

• A trust fund and trustee/fiduciary: In addition to setting up a trust account, you’re also required to name a trustee/fiduciary to oversee plan assets, ensuring funds are used solely to benefit plan participants.
• Investment options: Organize investment strategies and availability of the plan’s chosen investment vehicles.
• Contributions: Coordinate processes to ensure timely deposits of company and employee contributions.
• A record-keeping system: Your recordkeeper/TPA may manage most administrative responsibilities, but employers still have an obligation to keep records and ensure the plan remains legally compliant and is fair and beneficial to employees.
• Processes for remaining compliant and government reporting: There are a range of legal and regulatory requirements associated with any retirement plan, which your service provider can help you manage. Maintain a good working relationship with your TPA to create and follow processes for compliance regarding plan documents, government reporting and other legal requirements.

What are the costs of setting up and managing a 401(k)?
Employers can expect to pay a startup fee, which vary by the service provider, size of the business and complexity of the plan. Businesses also face costs in establishing record-keeping procedures and systems, educational materials for employees and ongoing administration costs from the provider. Smaller businesses, however, may have access to tax credits related to new plans.

Build a Secure Future with a Company 401(k)

Providing a retirement plan such as Company 401(k) is a significant step for your business to align your company values with how you support your employees, attract and retain talent, and build toward a financially secure future for you and those who contribute to your business’ success.

Check out FNB's Retirement Plan Services to learn more.