Starting A New 401(k) Program? 14 Helpful Tips From Finance Experts
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In a competitive labor market, retirement benefits are a substantial perk to offer your employees. Potential and existing talent may view the presence or absence of a 401(k) option as a key factor when deciding whether or not to join or stay with your company. Providing retirement benefits also shows employees you care about them and their future endeavors.
If you’ve never offered retirement benefits to your employees, you may be wondering where to begin the process and what the best practices are. Below, 14 members of Forbes Finance Council share the advice they’d give a business client contemplating offering a 401(k) option to their employees for the first time.
1. Ask Yourself Why It’s An Essential Benefit
Ask yourself about the “why”—what are you looking to accomplish? Improved retention and recruitment is a great answer if your industry demands or expects the benefit. Maximize the benefit for the company and staff, then budget for both the best-case and worst-case scenarios. Ensure cash flow exists for a match portion before you contract for it. Measure the results with a metric that is reviewed often. Lastly, educate often to maximize benefit. – Cynthia Hemingway, Fourlane, Inc.
2. Create A Winning Culture By Showing You Care
The financial commitment of offering 401(k) is far outweighed by the benefits of showing your team you care about their future. That shows you intend to offer them a career at a place they can “buy into,” believe in and grow with. This helps create a winning culture and instills bits of ownership with every person in your charge. – Neil Anders, Trusted Rate, Inc.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?
3. Have Active Conversations With Employees
First, I would encourage the business owner to have active conversations with employees about their, and potential employees’, desire to utilize a 401(k) plan. Second, find a professional to help guide them through the process of evaluating and choosing the appropriate plan and plan design. Creating a 401(k) plan and thoughtful education can help create a positive partnership! – Trevor Wilde, Wilde Wealth Management Group
4. Back It With Financial Education
Employees appreciate it when these benefits are backed up with financial education. Empower your employees with knowledge so they can maximize this benefit and properly plan for retirement. It’s a great way to show that you care for your employees, their families and their financial future. – Maria Puche, Wealth Armor
5. Define A Vesting Period
A 401(k) plan can be a significant expense for a company. In fact, it should be viewed as an investment in the workforce. It is important to ensure that a vesting period is defined in order for employees to fully benefit from this investment. – Charles Owo, Groupe SEB
6. Consider An Employer-Sponsored Cash Balance Plan
If appropriate, business owners striving to put significantly more toward retirement on a tax-deductible or tax-deferred basis may wish to consider an employer-sponsored cash balance plan, a defined benefit retirement plan that may allow you to put away three to five times more than you could with other, more common retirement plans. Additionally, a cash balance plan can exist alongside a traditional 401(k). – Thomas H. Ruggie, Destiny Family Office
7. Watch For Hidden Fees
A 401(k) plan is the best investment a company can make in the future of its employees. In the past, it was complicated to roll out, but with the new tools available, setting up and maintaining a 401(k) plan is as simple as it’s ever been. Just be sure to compare the different administrators available, as some may have hidden fees that can get passed on to your employees. – Marthin De Beer, BrightPlan
8. Hire A Tax Advisor
While the tax advantages of a 401(k) plan are great, I believe they are highly underutilized by both employers and employees. To fully take advantage of what a 401(k) offers, the employer needs to rely on a competent tax advisor, and the employees need to work with a financial advisor. – Vlad Rusz, Centaur Digital Corp
9. Offer An Employer Match
Offering benefits on top of an employee’s salary is a good way to show the employer is committed to keeping its employees happy. One survey found that 81% of employees say that retirement benefits “make up a major portion of a job search.” In other words, a 401(k) is very important to most people. Offering some type of employer match is a low-cost way for employers to go “above and beyond.” – Sean Frank, Cloud Equity Group
10. Explain The Value Of A 401(k)
If this is the first time many of your employees have had an option to sign up for a retirement plan, you will likely need to educate them on the advantages of participating, especially if you are matching a percentage of their contribution. This is a great opportunity for the leaders in the company to explain the value in such a way that younger employees can really appreciate the benefit. – Glenn Hopper, Sandline Global
11. Take Full Advantage Of The Tax Benefits
There are two tax advantages to employer-sponsored 401(k) plans: Employer contributions are deductible if they do not exceed the limits detailed in Section 404 of the Internal Revenue Code, and elective deferrals and investment gains are not currently taxed. But the real benefit is employee recruitment and retention. Before offering this benefit, check with your tax advisor to ensure you take full advantage of your tax benefits. – Jared Weitz, United Capital Source Inc.
12. Consider A Safe Harbor Option
I would suggest looking at a 401(k) with Safe Harbor. It offers the same benefits as a standard 401(k), but it also gives the owner a pass on some of the testing that is typically involved with a 401(k). As long as all eligible participants are receiving an employer contribution, the IRS will be satisfied. Speak with a trusted advisor to see if the Safe Harbor option is right for your business. – Justin Goodbread, WealthSource Partners, LLC
13. Look For Options That Simplify Plan Allocation
Provide investment options that are not too intimidating for employees new to retirement planning. Target retirement date funds are a great choice. They make it simple for employees to choose their allocation based on their age and when they plan to retire. – David Haass, Elite Insurance Partners, LLC
14. Use Behavioral Science To Boost Participation
Leverage the learnings from behavioral science to increase participation. For example, make your 401(k) program an opt-out instead of an opt-in model. Limit the number of investment choices to eliminate choice overload bias. – Evan Siegel, eGain
