Start-up companies don’t always think of adding a 401(k) plan to the list of benefits for their employees, but any startup business plan should include a 401k or another retirement plan. It is a valuable perk that will help companies whether young or old recruit and reward their employees. And for California companies that forgo starting their own plan, they will be required to join a state-run plan beginning as early as 2018.
If your startup business plan didn't include a 401k, keep reading, because that means the plan is incomplete.
As the job market continues to tighten, business owners can look at adding a 401(k) plan as a relatively inexpensive employee benefit to enhance their overall compensation package. Millennials are a savvy group, and they are proving to be pretty good savers. They are asking their companies to offer a plan.
From an employee’s perspective, 401(k) plans are superior to IRAs because of the convenience of payroll deduction. By participating in a plan, the employee is introduced to the world of saving and investing under a protective umbrella. And most plans come with a financial advisor who can help guide decisions suitable for the employee. Starting early is important – see our blog on Successful Retirement Outcomes to learn more.
From the business owner’s perspective, 401(k) plans do not have to be expensive. To establish a plan is maybe $1,500 or so for the plan and trust documents. Administration depends on the number of active employees, but starts at around $2,000 per year. The plan may offer a fixed or discretionary match or profit sharing, but those are often not required contributions. See our blog post on How to set up a 401k for more information about your options. Your startup business plan financials should have money set aside for this expense. (And lucky you there's a write-off for that!)
Another incentive for business owners to start up a 401(k) plan is that the states are starting to require that employees be offered participation in a plan. So if you don’t have a plan for your company, you may have to enroll your employees in the state-run plan. Over a dozen states have considered legislation for a state-run plan including California, Oregon, Massachusetts and Illinois. For California, companies with over 100 employees will have to begin with the state-run plan in 2018, and all employers with 5 or more employees will have to start in 2019, as the regulations read now. As a business owner, would you rather have your own plan that you can design and control on your own, or be forced into a state-run plan? Read more in our blog about Secure Choice California.
At Benefit Resources, we help companies all over the country set up and administer their 401(k) plans. Please make sure your startup business plan includes a retirement plan or 401k. We are completely benefits-neutral, so you’re free to select the investment custodian that best suits your needs. If you would like to talk about setting up a 401(k) plan, just click here to arrange for a call with one of our pension consultants.