How to Launch a 401(k) Plan

Six steps to guide you through this critical component of employee satisfaction.

dartsIn the war for talent, employees are looking for benefits that extend beyond healthcare and ping pong tables. Financial benefits are a critical component of employee satisfaction and a successful company culture. If you don’t yet offer a 401(k), below are six steps to guide you through the process. And if you already have a plan, make sure your current offering is still competitive on these issues.


1. Find an Unbiased Provider

The market is crowded with financial firms that offer 401(k) administration services, including mutual fund companies, brokerage firms and insurance companies. Many providers offer their own funds or insurance annuity products within the 401(k) plans they sell, creating a conflict of interest and unnecessarily high fees. Ideal providers should offer an open investment platform, an established business and technology infrastructure, and transparent fees.

2. Examine the Costs

The costs of administering a 401(k) plan can be paid by the employer or they can be allocated among employee accounts. But the investment costs – fees for using funds in the plan – are paid entirely by your employees. These fees matter: low investment fees translate into higher account balances and more money in retirement for your employees. According to a study by Vanguard, participants in a plan consisting of low-cost investments end up with $216,000 more in retirement than the industry-average.  Make sure you or your investment advisor are offering a cost efficient fund line-up for your employees.  For plans already in place, ask your provider for the recently required annual 404(a)(5) disclosure, which clearly outlines your plan’s expenses.

3. Measure your Funding Obligation

As with any new project, you should have a clear idea of how much cash flow will be needed to offer a 401(k) plan before launch.  Your provider or investment advisor can show you the annual cost of funding a plan under different scenarios, including future staff growth, salary increases, or additional profit sharing.  The cash outlay can be very flexible based on your company’s needs.  For example, while matching contributions are a great benefit for employees, providing a match is entirely optional.  Many small companies choose to start a plan without providing a match so that their team can at least begin to save on their own. This keeps plan costs to a minimum, which for start-up plans can be just a few hundred dollars per employee.

4. Protect Yourself with a Fiduciary

Due to their significant tax benefits, 401(k) plans are strictly governed by the Employee Retirement Income Security Act (ERISA).  As a “sponsor” of the plan, a business owner (or named individual(s) at a firm) has a set of responsibilities in caring for the plan, for which they can be personally liable.  A sponsor’s Fiduciary duty is to act solely in the interest of employees in the plan, including selection of the investment line-up, monitoring funds, and running the plan in line with an investment policy.  You can work with an independent Registered Investment Advisor (RIA), who can support you by managing the plan and taking on this fiduciary role. Be sure to work with a firm that will act as a fiduciary to protect your best interests and not a provider that only sells their own products.

5. Claim Your Tax Incentives

The government currently offers generous tax breaks to founders who offer retirement plans. Companies don’t pay any tax or payroll tax on contributions to a retirement plan, and they receive a $500 annual tax credit to offset any plan administration costs over the first three years.  Founders and team members also receive personal tax breaks for every dollar they put in a plan, so you can save more, pay less, and enjoy rising financial confidence for yourself and your team.

6. Give Your Staff a 401(k) Education

The work doesn’t stop at implementation.  Now that you’ve made this financial perk available, let employees know how they can get the most out of it.  Unless people understand its value, you miss the chance to earn more of their esteem, respect, and loyalty.  Engage your advisor in educating your staff about the intricacies of the plan, or how much they should put away personally.  This support can contribute to “financial well-being,” or a sense among your people that their financial future is strong.  If employees feel good about their financial outlook, and that’s in part because of you, they’ll come to work less distracted and more engaged in your mission.


About Us:

For founders who believe in supporting the financial well-being of their employees, Windgate Wealth Management’s Fi-Care Financial Wellness Program provides your team members with a Certified Financial Planner® to help them achieve their personal goals and maximize time and focus.  Chicago-based and having worked with business owners for over 25 years, Windgate manages company retirement plans, including 401(k)’s, to help you provide for your employees, reduce your tax liability, and grow your personal wealth.

[1] Vanguard Low Cost Can Actually Mean More for Retirement, 2015.

Perritt Capital Management, Inc. is the Registered Investment Advisor for Windgate Wealth Management accounts.  Windgate does not provide tax advice. Consult your professional tax advisor for questions concerning your personal tax or financial situation.

Data here is obtained from what are considered reliable sources; however, its accuracy, completeness, or reliability cannot be guaranteed.

Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP® Board’s initial and ongoing certification requirements.

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