In this article we cover design features and risks in Small Busines 401k Plans, if instead you are looking to set up a 401k for your small business, take a look at out related article - Small Business 401k Plans - What are your options? Small Business 401(k) Plan Owners take risks. However, risks in the company retirement plan should be reduced as much as possible. One of the risks some small business owners take is the risk of delegating all responsibility for the plan.

Small business owners wear a lot of hats, and often delegate many responsibilities for running the company.  Delegating is one thing, but a business owner understands that a mistake made by their staff is their responsibility.  If a mistake is made in a small business 401k plan, the fix might be expensive if not handled quickly.

1. Deposit 401k contributions immediately.  Any money withheld from an employee’s paycheck needs to be sent to the plan within 7 business days.  Failure to remit within 7 days will result in the company having to make up interest for the lost time.  The Department of Labor is VERY serious about this, and makes exceptions very rarely. 

The small business owner needs to make sure that policies and procedures are in place with your payroll department to ensure that payments are sent timely.  Then check your financial statements at the end of each month to make sure that the deposits sent cleared the bank.

2. Loan payments must be started on time, and continue until the loan is fully paid.  401k loans are not difficult to initiate, but if the payments are not made timely, then the participant is stuck with a tax liability.  Payroll departments may take some responsibility for getting the payments started and to track ending dates. 

3. Enrollment of eligible employees to the plan.  Employees must be offered enrollment in the plan when they are eligible.  The small business owner must have this system in place so that HR is providing employees with the appropriate information and documents at the time of eligibility.  If the small business 401k offers automatic enrollment, the deductions should be initiated by payroll upon eligibility.

If an employee is not offered enrollment, or isn’t automatically enrolled appropriately, then the company ends up having to make a contribution for those employees.  This can be an expensive fix for what might otherwise be seen as an oversight.

SUMMARY

Small business owners take a risk just by opening their doors, and add to that risk when they take on employees.  To reduce risk in a small business 401k plan the business owner needs to take some steps to insure that his or her internal procedures are in good shape.  They can reduce their risk further by studying 401k rules extensively, or by hiring a local TPA like Benefit Resources to help them oversee their plan.  Think of it as an inexpensive insurance policy.  If you have any concerns about your plan, CLICK HERE to find out how you can have a free initial review of your plan. 

Click to see Small Business 401(k) Plans: Design Features and Risks - Part 1.

Click to see Small Business 401(k) Plans: Design Features and Risks - Part 2.

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