Information that Helps You Choose the Right Employee Benefit Plan

What kind of information should I give my investment advisor when discussing setting up a retirement plan for my small business? I think a 401K plan is the best option. Do I still need to talk to my advisor?– Marylou Saver, Atlantic Beach, Florida runs a party decorating service.

Choosing the employee benefit plan or retirement plan that you should set up for your business can be a tedious, time consuming and, above all, very confusing task. Even if you do hire an investment advisor to help you with this task, there is still some analyzing and comparing for you to do. The advisor may ask for some details about your business that will help determine the kind of plan that will suit your needs perfectly. Remember that even if you have decided on a 401K plan, your advisor may be able to help decide exactly which kind (Solo 401K,SafeHarbor401K, Roth 401K etc) will suit you. Here is some of the information you should have at hand before you sit down to discussing the kind of retirement benefit plan your business should offer employees.

The first point to consider is your contribution. How much can your business afford to contribute to the employee 401Ks? What kind can you afford- a regular monthly contribution or a non specified profit sharing contribution? Given that the total contribution outlay for the business will depend on the number of employees and their eligibility to the plan, these employee details will also be needed by the advisor.

Unless you are discussing the plan with the third party agency that will set up the 401K for you, it is also worthwhile discussing DIY software suites like These suites let you manage your 401K on your own with ease. This helps keeps the costs down while giving you and your employees a great deal of control over the plan assets.

Comparing 401Ks with Other Small Business Employee Benefit Plans

I know that there are many employee benefit plans that I can choose to set up for my business. Why am I always recommended a 401K over the others?- Jason Bartholomew, Delaware, owns a café.

There are different options available to employers like you who are looking to make retired life easier for their employees by setting up an employee benefit plan for them. Although there are other plans, the SEP IRA and the 401K are the most popular ones. Your financial advisor is right in recommending that you establish a 401K plan instead of a SEP IRA because there are some special advantages this plan has to offer.

The first and most important one is that the 401K plan is a great way to encourage employees to save for their own future. Employee contributions are deducted directly from their paycheck even before they are paid. You can choose to match their contributions to boost employee morale and loyalty. In effect, your 401K plan puts the employee’s retirement planning firmly in his hands with help from you in the form of contribution matches. When you use an easy to operate software suite like to manage the 401K, the employee can stay updated with his retirement planning account at all times. With a SEP IRA, only you, the employer, make the contributions. When your employee quits working for you, he/ she can simply walk away with the money in the IRA account.

Another important advantage of 401Ks is that you can opt for a vesting schedule so that only employees who have been with your company for a while can withdraw your contributions. This ensures that you are rewarding only those employees who have really contributed to your business.

Importance of Investment Choices with 401K Plans

Why should I look for DIY 401K suites that offer a number of investment options? Aren’t these too expensive for a small business like mine? Glenn Johnson, runs a home foods business in Kentucky.

The primary objective of offering a 401K plan to your employees is to encourage them to start saving for their future. Any business, however small, is bound to have employees of various ages, in different stages of life. Older employees, who are near retirement, will typically prefer to invest their 401K contributions in risk free, safe avenues. Younger ones will be more open to higher risk investments. Although the 401K is a nest egg for retired years, the degree of risk that participants will be willing to undertake with respect to deploying the funds in this account may differ substantially.

Choosing a DIY 401K package that offers very limited investment choices is a sure fire way to make your employees quickly lose interest in contributing to it because it simply doesn’t; match their investment attitudes. Opt for suites like that offer top notch investment avenues from Vanguard, Fidelity and many others to encourage your employees to maintain contributions voluntarily. Because of the comprehensive range of investment choices offered by such 401K suites, each and very employee of yours is sure to find a product that matches his risk appetite, investment horizon and returns expectation.

Many of these effective and flexible DIY 401K software suites let you keep costs well within your budget. The fact that you can administer it yourself with minimum time investment lets you eliminate administration fees that you would otherwise be paying to a third party.

Fiduciary Responsibilities Explained

What are ‘fiduciary responsibilities’ and what do they have to do with my small business 401K plan? –Mitch Campbell, Oklahoma- Owner of a cake shop chain

A retirement plan is a valuable benefit that you offer to your employees. Your staff and their beneficiaries gain some great advantages with a small business 401K plan and so do you, the employer. As the employer setting up the account, you have some responsibilities to meet too. The Employee Retirement Income Security Act (ERISA) outlines the responsibilities you need to meet when managing the 401K plan and its assets, also called fiduciaries.

When you first set up your 401K plan you also create a plan outline that describes it exhaustively. This plan also gives a guideline to operating the plan, managing it and tracking it. Carrying out these responsibilities in line with the plan document is your primary fiduciary responsibility. Different people, involved in some way with your 401K plan may bear different kinds of fiduciary responsibility depending on the functions that they carry out for the 401K.

Some examples of fiduciary responsibility are carrying out investment with the participants’ best interests at heart, ensuring that unnecessary expenses are not incurred etc. Failure to adhere to your fiduciary responsibility can make you liable to making good any losses sustained by the plan’s participants owing to your negligence.

You can however limit your liability by documenting all your actions and related processes to show that you have fulfilled your responsibilities to the best of your ability. Using a software suite like helps you keep informed about ERISA guidelines so that you can always be in compliance with the law.

Can Employees Directly Deposit Funds into the 401K?

I run an electronic equipment shop in Minnesota. Can my employees make direct deposits into their tax advantaged 401K instead of having me diverting a part of their paycheck into it?- Gary Anderson.

When you set up a 401K for your employees, only you can make their contributions into the plan. Your employees cannot add in their own funds to the 401K plan by depositing money directly without your knowledge or participation. Typically, what happens is that the employee decides on the contribution he can afford to make every month and this amount is deducted by you, the employer, from his paycheck and deposited to the 401K. His paycheck is reduced by the deposit amount and he pays taxes on this reduced paycheck.

Uncle Sam does not allow employees/ 401K participants to use this plan like a regular investment avenue because of the massive tax benefits that are offered with it. After all, if it were possible to ‘invest’ or park funds in this retirement plan, then many people would prefer to cut down their tax bills substantially by parking a major portion of their savings in such plans.

But, if your plan document has the right provisions, your employee can revise his contributions so that he puts in a larger amount every month into the 401K. This will still be carried out the same way, through a paycheck deduction that is done by the employer.  If you are using an end to end software suite like to manage your business’s 401K, then your employees should have no trouble tracking their contributions so that they have a clear picture of their 401K account status at all times.

What Happens to the 401k Plan If the Business Goes Bankrupt?

Post recession, my employees are worried about contributing to their 401k because they will lose the money if my business goes bankrupt. Is this right? – Angela Jessenthal- owns several boutiques in North Dakota

The fact that many small businesses did go belly up during the recession has made many employees fear for the safety of their employer sponsored retirement plans like 401ks. But your employees have no cause for worry. The 401k plan is an employee benefit plan and the government takes great care to ensure that this plan is not affected by the fortunes of the employing business.

Even in the unfortunate event that your business folds, your employees need not fear that their hard earned money and savings will be wiped out. The 401k plan is covered by the Employee Retirement Income Security Act of 1974, or ERISA. When a business goes bankrupt, the creditors can claim access to all of the business’s assets, except the 401k plan. The ERISA protects this plan from creditors so that none of the business’s debts can be met by funds out of this plan.

This means that your employees need not have any doubts or hesitations about making the maximum possible contributions to their retirement planning 401k even if the economy is declining and many small businesses are closing shop. Give your employees the ability to manage and track their 401k plan on their own by using a software suite like This will give them a greater degree of control over the plan and its funds and in turn, boost their confidence.

Delayed Employer Contributions to 401Ks

Should I mention the dates on which my contribution match will be made to my employee’s 401K plan? What happens if I cannot make the deposit on time? – Carla Meyers, runs a flower shop chain in Oregon

Usually your 401K plan document does mention the dates by which your matching contribution is paid into your employee’s 401K account. In addition, there are some Department of Labor regulations that also come into play regarding the pay-by date for your matching contributions. You are required to send the plan’s assets to the trustee (for a trustee administered plan) inside of 15 business days after the month in which deductions are made ends. Since your 401K plan is an employee benefit plan, questions will be asked when there is undue delay in making your contributions if you cannot show just cause for the delay.

It is best for you, as the employer to make the deposits before every month end to avoid awkward questions being asked in case you face a DOL audit. If the DOL auditor is not satisfied with your explanation for any delay, then you may even be fined.

If keeping track of contributions and pay-by dates is getting troublesome and time consuming, you may want to consider using a self contained 401K suite like Such suites let you track your deposits, manage the 401K account as well as generate government required reports with the greatest of ease. Your employees will also appreciate the immense flexibility and transparency they get in with such DIY 401K plans.