1. What will it cost to set up a 401(k) plan and administer it?
It depends! New plans may have start-up or base fees beginning at $1,800, and every plan has a per participant fee of $25 or more. Plans consisting of 100 participants or more require an annual audit and are therefore more expensive. You also have to take into account fees charged by the adviser who will help pick the appropriate funds platform, along with the fund fees that vary in amount. Some of these costs may be covered by the employer or passed on to the employees, but either way the employer is on the receiving end of tax benefits that can help offset the cost to create and administer the plan. Finally, you are able to customize one or more parts of the plan such as defined contribution and defined benefit, etc. The key is to get the right design to accomplish your goal and the cost will be worth it.
2. Is there enough employee interest?
A 401(k) plan is a powerful company benefit to retain your current workforce and to attract new talent. However, if you are not sure if there will be enough interest in your company to launch a 401(k), consider conducting a participation interest survey. Make sure you communicate the advantages of incorporating the plan into a savings strategy, which can include employer contributions, employee pretax contributions to a 401(k) plan or tax-free distributions to Roth accounts, and compounded tax-deferred earnings that can help reach individual retirement goals. A powerful visual would show your employees a chart illustrating “what if I start saving now and stop in 10 years” versus a person who “delays, puts in more money, yet ends up with less funds in the long term.” It is important to highlight the key to a successful savings strategy is to start investing early and steadily.
3. How will you introduce the plan to employees?
Once you decide to move forward with a plan, a proper recordkeeping system should be established, if it has not been already. This will assist you in managing the plan and accurately keeping track of employee communications, contributions, investments, expenses, and distributions. You must notify all eligible employees and let them know about the benefits, features, their rights, and how the plan will operate. This is distributed in the form of a summary plan description that your financial adviser can help you put together at the start of your plan. Again, you can convince your employees of the plan benefits by making them aware of several important points such as:
- the current state of their social security
- how the retirement plan fits their retirement aspirations
- how saving pre-tax allows tax benefits now
- how they won’t miss any deposit deadlines
- how the plan offers convenient payroll deductions they don’t have to worry about
- and, if it’s offered, the advantages of matching benefits from the employer
4. How many funds will the 401(k) plan offer and from what categories?
The number of funds in the plan can vary based on choices made by the adviser and employer. Ideally your plan will offer thousands of investment opportunities, but appear as 10-15 major fund categories that complete the spectrum of risk choices. The adviser you choose for your ongoing relationship will be able to speak to your employees at an annual meeting and also offer them ongoing advice so that they make the right decisions based on their individual situations.
5. Will there be a balanced fund offered that does not require employees to choose their own funds?
Employees ALWAYS choose their own fund, even if it is a lifestyle (age specific or retirement target specific) fund, or a “balanced fund.” Many plans offer this type of fund to allow employees an easy choice rather than having to spend hours over the selection process of many individual funds. By being balanced, employees aren’t obligated to revisit their fund’s strategy very often as they can feel confident in the mix of funds that are incorporated into their portfolio for the long term.
Contact Ren Cicalese on 856 667 6225 or by Email if you would like more information or a quote for setting up a 401(k) plan for your business.
Investment advisory services offered through 1st Global Advisors, Inc.
Insurance services offered through 1st Global Advisors, Inc.
About the Author: Ren Cicalese
Ren is the managing shareholder of Abacus Payroll and the Alloy Silverstein Group. He is only one of 5,000 CPA’s in the US who is a certified Personal Financial Specialist (PFS). He has extensive accounting and financial management experience and works with law firms, real estate developers, computer consulting businesses, healthcare professionals, manufacturing companies, retail and wholesale organizations and professional athletes. Contact Ren on (856) 667-6225 or Email if you’d like more information about outsourcing your payroll.