4 Misconceptions About Starting a 401(k) PlanSubmitted by BCR Employer Plans on July 19th, 2017
As your company grows and adds more valuable employees, the type of retirement plan offering may need to be adjusted accordingly. Many small businesses who currently offer SIMPLE IRA plans, SEP IRA plans or payroll-deducted IRA programs have and are exploring new options that better suit the new size and employee base. A natural next plan for a small business would be the consideration of a 401(k) plan. Here are four common misconceptions I hear when speaking with plan sponsors who are stuck on the decision to add a 401(k) plan:
401(k) Plans Are Too Expensive For Small Businesses
While many 401(k) plans are designed only to suit large businesses, there has been a strong, recent push in the marketplace from several providers to make 401(k) plans more affordable and easier to manage for small businesses. Here are two competitive providers for start-up plans:
401(k) Plans Are Too Complicated
Today’s 401(k) plan has become more efficient and easier to run thanks to technology. Plan providers offer built-in tools and services to make your duties with the plan easier to handle. Starting a 401(k) plan does not have to be a complicated undertaking. Having the right partnership with a provider and advisor should allow you to share responsibilities with parties involved. This cuts down your workload tremendously with a 401(k) plan.
401(k) Plans Require an Employer Match
Employer matches and profit-sharing contributions are optional with a 401(k) plan. You may be used to a SIMPLE IRA plan where the company must make a match, but a 401(k) plan allows you to decide if an employer match is a good fit for your company. You can always add a matching feature to a plan in the future if now is not the right time. Keep in mind that employer contributions are tax deductible for the business!
Employees Will Not Participate Because They Do Not Make Enough Money
Participant contributions are not required, and there is no minimum an employee can contribute. Even though you are not required to, offering a match can provide more incentive for your employees to participate in the retirement plan. Proper education for employees can better help them make a more educated decision of whether or not to contribute, and how much to contribute. Most 401(k) plans allow participants to change what they contribute per pay period from time to time. Contributing something is always better than contributing nothing, and knowing that the amount a participant contributes can be reduced to zero if necessary can help prepare for unexpected expenses.
Making sure you are increasing the value-add with a 401(k) plan is very important. If you select the wrong providers, plan design and do not properly communicate the importance of the plan to employees, these four misconceptions may turn into reality for you.