Setting Up a 401(K) plan for your Las Vegas business is not mandatory. However, it may soon be approved by the IRS with the premise that employers provide congruous notice to employees with an option to “opt-out” of mandatory pre-tax contributions.
Advantages
While some employers question the importance of offering a retirement plan for their workers, a recent study has shown that 94% of the small business owners are realizing the importance of offering a 401(K) plan in recruiting and retaining employees.
Furthermore, attracting quality employees are likely to consider working for a company that cares to invest in their workers by offering retirement benefits the longer that they stay with the company.
6 Easy Steps to Set Up 401(K) Plan For Your Business
1
Decide who Sets and Maintains the Plan
Options
There are several options you can choose from in setting up a 401(K) plan for your business. You may do any of the following:
Set it Up Yourself
Hire a professional
Employ the services of a Financial Institution
Setting it up yourself
Setting the plan yourself will be cost-efficient but it will consume a lot of your time. In this case, it is important to weigh the advantages and disadvantages of each option in consideration of your budget and other important factors in making a decision.
2
Create Your Written Plan Document
Components
Your plan document should be formally written and should state the provisions of your 401(K) plan for the business. Depending on your setup, this could either be prepared by you, the professional you hired or the financial institution whose services you employed. This legal document should include the following:
Arranging a trust for the assets of the plan is one of the requirements in starting a 401(K) plan for your business. By doing so, it guarantees that the funds will only be allotted to the participants and their beneficiaries.
Duties and responsibilities
By assigning a trustee for the plan’s assets, you are making sure that the following duties and responsibilities will be carried out:
Processing proper contributions and transactions related to accounting
Authorizing the amount, timing, and payment to the participants and or beneficiaries
Maintains accurate records of investments, disbursements, and other related financial transactions
Setting up a recordkeeping system in managing a 401(K) plan for your business is important for maintaining employee records that include:
Contributions
Earnings
Expenses
Distributions
Losses
Plan investments
Who handles these?
These tasks will be handled by the individual you hired for their professional services or the financial institution you employed. In case you are handling the records keeping process yourself, opting to make use of a payroll software could work to your advantage. After all, your recordkeeping system is important in preparing annual reports as a requirement.
5
Disseminate Plan Information to Qualified Employees
Important details
Getting your employees to participate in the 401(K) plan for your business requires disclosing important details of the plan such as:
Eligibility
Benefits
Claims
Contributions
Distributions
Features
Employee’s rights and responsibilities
Summary Plan Description
See to it that you include the summary plan description (SPD) in distributing the information about the plan to qualified employees. In providing the SPD, employees are advised on what they can expect.
6
Maintain Your Business 401(K) Plan
Recurring responsibilities
Assuming that you have already taken the steps to set up a 401(K), it is important to know that there a recurring responsibilities that you need to carry out, as a plan sponsor. Here are some of the things that you need to conduct periodically :
Testing
Process employer contributions
Report plan information
Process payments
Kinds of Testing
On the assumption that you have set traditional 401(K) plan for your business, ensure that all of your employees benefit by processing an annual 401(K) testing. In particular, there are two (2) kinds of tests that needs to be done:
Actual Deferral Percentage (ADP)
Actual Contribution Percentage (ACP) tests
You are also expected to make contributions if you have set a safe harbor or a SIMPLE 401(K) plan. Otherwise, you will be subjected to pay a penalty for late 401(K) contributions. Most 401(K) plans are required to submit Form 5500 for an annual return or report of employee benefit plan. This form has to be filed by the plan administrator or the employer who is responsible for maintaining the plan.
Payment
Lastly, you also have a responsibility to pay the plan. In particular, the three (3) kinds of fees that you need to settle in maintaining the 401(K) plan for your business are:
