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Implementing 401k retirement plans in your business

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The topic of this article is implementing 401k retirement plans in your business. This is an important topic for anyone who owns a business, and it's not just for anyone with a larger business that employs 200+ people. All employers and business/organization owners should consider retirement plans for their business. We are going to talk about 401k retirement plans and why you might want to consider implementing a 401k retirement plan in your business.

A survey by Boston-based Fidelity Investments, one of the world's largest providers of financial services, indicated that one out of four small business owners believe there isn't a 401(k) plan to suit their company's needs.

Let's start with the basics. More and more of the United States population is nearing retirement age. That's right-baby boomers are slowing down. As people approach retirement age, particularly in a time when Social Security is rather unstable and unsure, they tend to become worried about things like that fact that they didn't save particularly well, they are unsure about social security, and they are unsure about how well their pension fund is actually going to perform. All of these factors have led more and more small businesses to look at offering 401k retirement plans. 401k retirement plans are great for small businesses because not only are they cost effective, but they are also incredibly easy to implement and administer. And uncomplicated is good. 401k plans are attractive to small business owners because

  1. The Pension Protection Act of 2006 gives benefits to small business owners who offer 401k plans to their employers.
  2. Individuals can directly control their 401k plan.
  3. Employers can control if and how they contribute to 401k plans.

There are further benefits to employers who offer 401k retirement plans. Younger employees are concerned with retirement, because the majority of them don't believe that Social Security will still be around once they reach retirement. So you can attract younger employees.

Further, you as the owner are not primarily responsible for funding the 401k. 401ks are mostly employee funded. As the owner, you can also better plan your cash flow when you match employee contributions monthly or yearly. Employees have direct access to their account, so you don't have to deal with the hassle of helping them access it. You can use payroll deductions to conveniently fund the plan. And employees choose investment strategies, so you don't have to worry about being too conservative or too aggressive in terms of investment.

Further, you can be even more specific about what kind of 401k plan you want. You can either have a

  1. Do-it-yourself plan where employees have absolute control over which funds they want to invest in, or
  2. A blended strategy where the employees choose whether they want to be moderate, conservative, or aggressive in their investing, and then funds are accordingly invested for them.

As an employer, here are the basic steps that you need to follow to implement a 401k retirement plan.

  1. Write up an official document that establishes the guidelines for your 401k.
  2. Determine exactly who you are going to cover. You need to establish this based on their age, how long they have been working for you, and status as full or part time.
  3. Know precisely what the legal minimum guidelines. Contact the IRS and/or the U.S. Department of Labor, or look at their websites (such as the DOL Employee Benefits Security Administration).

Decide whether you want a traditional plan, which is the most flexible, a safe harbor plan, which is similar to a traditional plan but with fewer tax rules and provides for employer contributions that are fully vested, or the SIMPLE plan, which lets small businesses have a cost-effective way to offer retirement benefits. This last plan is only available to small businesses with less than 100 employees. Contact the IRS or the DOL for information on these different 401k retirement plans.

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Posted by DF
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