American author Earl Nightingale once said, “The foundation of a good retirement is planning.” Having adequate funds to support one’s retirement takes planning, and accumulating adequate requirement funds takes time. So, it is wise for every employee to start planning for retirement as early as possible. One of the most common types of retirement plans used by Americans today is the 401(k) plan.
What is a 401 (k) Plan?
A 401(k) plan is an employer-sponsored plan that allows enrolled employees to save for retirement in a way that provides tax benefits. In most cases, an employee can choose how much to contribute to his/her 401(k) based on a percentage of income. The employer withholds the designated percentage of income from each paycheck and deposits it into the employee’s 401(k) account. Generally, employees choose from a range of investment options. Some employers also offer a match to the employee’s contribution.
Small Businesses and Retirement Plans
It is estimated that among large U.S. firms with 500+ employees, about 95% offer retirement plans, while among small firms with less than 50 employees, about 48% offer retirement plans. And among small firms, only about 26% offer a 401(k) plan.
The reasons cited by small business owners for not offering a 401(k) plan were:
- Feeling that their business was too small to offer a 401(k) plan.
- Believing that they could not afford to match.
- Believing that plans were too expensive to set up and manage.
Each of these beliefs is a myth! Any size business can offer a 401(k) plan. Matching is not required, and there are low-cost solutions and plan providers for small businesses.
Reasons that a Small Business Should Offer a 401(k) Plan to its Employees
A 401(k) plan should be offered because tax credits are available to small businesses that are starting a plan. Any contributions matched by an employer are tax-deductible. Benefits packages have been shown to enhance employee acquisition, productivity, and retention. And, there are providers that specialize in 401(k) plan administration, so it makes having a plan easy for owners.
How to Set Up a 401(k) Plan
- Create a document that outlines the plan details.
- Establish a trust for the plan’s assets to protect the assets.
- Create a recordkeeping system to track the contributions, earnings, and distributions of the plan.
- Provide information about the plan to employees and begin enrolling them.
- Arrange to manage the plan.
Many small business owners outsource 401(k) plan administration to a plan administrator/service provider. Choose a service provider by considering each potential firm’s financial stability, services provided, assets under management, and the quality and reputation of the firm’s officers.
Employee Benefits Administration
Employee benefits administration functions include discussing benefit options with employees, counseling employees, overseeing enrollment periods and processes, monitoring benefit enrollment and usage, and troubleshooting any problems that employees have with their benefits.
Choose an Expert Payroll Service
Choose an expert payroll service, Palmetto Payroll, to assist you with your payroll system. We have offices in Columbia and Charleston, serving over 300 business owners statewide and growing. We offer tailored solutions to save you time and money so you can thrive and grow, including payroll, tax depositing and filing, management reporting, Human Resource Services, and timekeeping services.
