6 Easy Steps to Set Up 401(K) Plan For Your Business
  1. 1
    Decide who Sets and Maintains the Plan


    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. 2
    Create Your Written Plan Document


    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:

    • Basic plan document
    • Summary plan description
    • Summary annual report
    • 401(K) adoption agreement
    • Plan amendments
    • Hardship withdrawals and participant loans
    • IRS determination letter
    • ERISA fidelity bond
    • Fee disclosures


    Click the link for detailed information of each core component of the plan document.

  3. 3
    Assign a Trustee for the Plan’s Assets

    Arranging a trust

    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
    • Determines eligibility of employees
    • Functions as an Agent of Service

    Detailed information

    Click the link for detailed information of a plan trustees duties and responsibilities.


  4. 4
    Set Up a Recordkeeping System

    Setting up

    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. 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. 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.


    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:

    • Plan administration fees
    • Investment fees
    • Individual service fees

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