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How to get a retirement plan set up


A retirement plan is a little like a child.  It is conceived, nurtured through its early stages, grows, and eventually matures to provide significant benefits to the plan participants.  The reasons why you’ve decided to learn how to get a retirement plan set up for your company will help you design the right plan for you.  Remember the four “R”s to help you get a handle on what’s important to you and decide how to get a retirement plan set up that meets your needs:Getting a retirement plan set up is like raising a child

  • Recruit Is a plan important for your recruiting efforts?  Will your prospective employees be satisfied with a 401(k) deferral-only plan?  Are your competitors offering more?  Your industry may dictate what type of employer contribution your recruits expect.
  • Reward Do you want a plan designed to reward your current employees?  You can draft a plan around existing incentive programs.
  • Retain There are certain plan provisions, such as a vesting schedule, that will provide your employees an incentive to stay with you.
  • Retire – It is important for business owners and employees to have an account balance that will help them retire comfortably.  You may want to start with this end in mind:  if I want to have a certain balance at my retirement age, how much will I need to commit to saving each year to meet that goal? Perhaps you should consider a pension plan in addition to a profit-sharing plan to increase contributions.


Once you have outlined your goals for what the plan will look like, you can figure out how to have your retirement plan set up to fit your needs.  Even prototype plans offer options for employers to draft a semi-custom document:

  • Waiting period How long does an employee need to wait before he or she becomes eligible for the plan?  You can offer immediate entry or require up to a one-year wait for 401(k) plans. 
  • Age You can require that an employee be 21 years old before they are eligible for the plan.  Any age below that is allowed as well; it’s up to you!
  • Open enrollment periods – When will an employee be allowed to enroll once they have satisfied the waiting and age requirements?  Options include immediate, monthly, quarterly, semi-annually, or annually.
  • Contributions –
    • Will the plan include the option for employee contributions?  Will you include a Roth (after-tax) option in addition to the pre-tax option?
    • Will you fund a matching contribution?  If so, will you have a fixed formula or leave the decision about the amount until the end of the year?
    • What about profit sharing?  There are a variety of allocation formulas available.  Given your goals, which one is right for you?
    • You may wish to include a pension plan to maximize the amount of employer contributions that can be deposited to retirement accounts each year.
  • Vesting – Will employer contributions be subject to a vesting schedule?  Vesting options range from 100% immediate vesting to three-year cliff vesting (0%, 0%, 100%) to six-year graded vesting (0%, 20%, 40%, 60%, 80%, 100%). 
  • Forfeitures Employer contributions are forfeited by employees who are not fully vested. Forfeitures can be used to pay fees, offset employer contributions, or allocated in addition to employer contributions.
  • Retirement age – At the plan’s defined Normal Retirement Age (NRA), a participant becomes 100% vested in all accounts.  NRA can be a specific age such as 59 ½, 62, or 65 or have a qualifier; for example, age 65 plus five years of participation.
  • Distribution options Will the plan only offer lump-sum distribution?  Would you like the plan to offer installment payments and/or annuity benefits as an option?  What about loans or withdrawals due to financial hardship?
  • Compliance testing options All plans are subject to compliance testing, but many tests have alternatives available:
    • 401(k) non-discrimination can use either prior-year or current-year testing methods
    • 401(k) testing can be avoided if Safe Harbor contributions are offered
    • Definition of Highly Compensated Employee can be limited to the top 20% of employees
    • Top-heavy contributions can include or exclude Key Employees

Get your Free Consultation to see which type of plan would be best for you!


Retirement plan assets are held in a trust.  The trust language is part of the plan documents.  When you have a retirement plan set up, where you choose to invest those trust assets depends on what’s important to you and the plan design.  A variety of investment custodians are available depending on which type of investment works best for your plan:

  • Trustee-directed – The plan trustee can take responsibility for investing trust assets.  The trustee may have additional exposure to fiduciary liability and responsibility if all plan investment responsibilities are assumed.
  • Participant-directed – Plan trustees can push most of the fiduciary responsibility for making investment choices to the plan participants if participants are allowed to invest funds in their own accounts.  A series of rules surround this option – see ERISA §404(c) for details.


The record-keeping function will be determined once the investments are in place. The investment custodian, plan administrator, or a third party recordkeeping firm may be engaged to perform this function.

All investments held by the trust will need to be valued at least once per year.  Marketable securities like stocks, bonds, and mutual funds are valued by the markets in which they are traded. Fixed assets and collectibles held by trust assets need to be valued by an independent third-party appraiser every year.

The record-keeper will track account balances for the plan and/or the plan participants. Participants must be provided with a statement of their account balance at least once per year.  If the accounts are participant-directed, quarterly statements are recommended.


Part of getting a retirement plan set up is administration of the plan, which is the responsibility of the employer who adopted it.  Many of these functions are often outsourced to a Third Party Administrator (TPA).  The Employer should take care in engaging a TPA that will perform the responsibilities with diligence and care. As the employer, you should make sure to review the TPA service agreement so you understand completely your responsibilities and what the TPA is responsible for.

Among the responsibilities of the administrator are:

  • Plan document drafting and maintenance
  • Compliance testing to ensure all rules and regulations are being followed
  • Preparation for reporting of annual plasn activity to government agencies

Work carefully with your TPA to make sure all functions are performed to your satisfaction and in a timely fashion.


The hard part is over; you’ve figured out how to get a retirement plan set up that meets your needs!  You’ve determined what was important to you and drafted a plan document to incorporate those goals.  Your plan has a strong TPA to help you keep everything legal, and you’ve decided on the best investment options for use in funding the plan.  Making the decision to have a retirement plan set up is an investment in itself; congratulations on making this commitment to your future!




You might also like:

The Dangers of a DIY Retirement Plan

Retirement Plan Administration - The BRI Experience

7 of the most common mistakes when setting up a retirement plan

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