How do you set up a 401(k) for small businesses?

Q. I run a small local business in my town and we have been doing pretty well for the last three years. I want to provide a 401(k) plan for my employees, but have no idea how to go about it. Is it a complicated process where I will need to hire others, or can I do it on my own? What are the steps involved? Meredith, Georgia.

Hi Meredith, setting up a 401(k) for small businesses is not complicated but requires your attention. For any small business, employee benefits is an effective way to attract more employees, and keep your current employees happy. You can find the steps involved described below.

  • Decide whether you are outsourcing or not

The first step of setting up a 401(k) plan for small businesses is to decide whether you will be hiring other people like a bank, insurance company or a professional to set up and maintain the plan, or if you will be doing all this yourself. While you will save money by taking up the responsibility yourself, it is not the most time-efficient option. If you have little to no experience in setting up a 401(k), it may be better to hire a company that has a number of years of experience like 401k Easy.

  • Create a legally binding written plan document

A written plan document is a legally binding document which contains all the information about the plan including terms and conditions, the type of plan you choose, and features such as contribution amounts and which employees are eligible, how the funds will be contributed and distributed, and so on.

  • Set up a trust for holding the assets

The next step is to set up a trust for holding the assets of the 401(k) plan in order to ensure that the contributions are not misused in any way. While setting up this trust, you must also appoint a trustee. The trustee will be the one handling the contributions and distributions.

  • Find a way to handle record-keeping

It’s not enough to simply have a 401(k) plan. Your small business should have a way to keep track of the details such as contributions, distributions, investments, expenses, earnings, losses and more. If you are the one maintaining the plan, a payroll software can help you out.

  • Inform eligible employees

Now that your 401(k) plan is ready, you can inform all eligible employees about it by using a summary plan description. Make sure it contains crucial information such as the features, benefits, and rights of the employees.

The backbone of any organization is its employees. Keep them happy, and they will reward you with increased productivity and commitment. A 401(k) plan is a sure-shot way to keep your employees happy. Try out 401k Easy’s online services to help you open accounts for your employees in a smooth and easy manner.