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How to Offer Your Employees a 401(k) Plan

June 28th, 2012 ::

By Maria Valdez Haubrich

How important is retirement planning to employees today? The majority of employees (82 percent) would give up 5 percent or more of their salary if the tradeoff was having a reliable income during retirement, according to a Bank of America Merrill Lynch survey reported in Employee Benefits News. Nearly half (42 percent) would be willing to forego 10 percent or more of their salary.

“Employees have gotten aggressive about their need and desire for guaranteed income in retirement and are even saying they will give up something currently — a certain level of income — to get a good guaranteed-income product longer term,” said Kevin Crain, head of institutional retirement and benefit services for Bank of America Merrill Lynch.

Clearly, offering a retirement vehicle such as a 401(k) is a major factor in attracting and keeping employees. In fact, 92 percent of employees surveyed said they consider their 401(k) the cornerstone of their retirement plan.

Can your small business offer a retirement plan for employees? It’s easier than you think. While many plans tailored for big corporations may seem intimidating, complex or too costly, there are more options than ever for even the smallest businesses. Here are some things you should know about 401(k) plans.

  • You don’t have to match employee contributions. Big companies often match employees’ 401(k) contributions up to a certain percentage. Small business owners who think they would have to do this, too, may assume they can’t afford a 401(k). While matching is a nice benefit for your employees, you are not required to do it.
  • You can take advantage of tax credits for costs involved in setting up a 401(k) plan. Talk to your accountant to learn more.
  • Consider fees. Fees for managing 401(k) plans can eat into the employees’ gains. New Department of Labor regulations will require 401(k) plans to provide detailed information about fees to investors by August 30.
  • There are 401(k) plans you can use even if you don’t have a single employee. These are called solo 401(k) plans and let you make higher contributions than you could to a traditional 401(k).
  • Ask what kinds of investment options each plan offers. In general, you want a plan with a wide range of options to give employees more choice.
  • Find out what kind of customer service is provided. How easy is it for you or your employees to contact the company for assistance? What type of activities can you perform online on the company’s website? How involved will you have to be in managing the plan?
  • Ask what type of education and guidance is available to employees. Educating your staff about their options is a key factor in increasing enrollment in a 401(k) program.

Many companies now offer 401(k) plans tailored to small companies. A few to consider are Employee Fiduciary Corporation, Vanguard, Sharebuilder and Fidelity. The Department of Labor website offers guidance and resources to help you learn more about setting up a 401(k) plan for your small business’s employees.

Image by Flickr user Images of Money (Creative Commons)

The views expressed here are the author's alone and not those of Network Solutions or its partners.

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