As a small business owner, it's important that you take the steps that you can to be competitive in the marketplace. For example, one of the things that you may be considering is offering a 401k to your employees. When you get ready to establish a 401k plan for your company, there are some factors that you'll need to consider. Understanding the fundamentals of a quality 401k plan design will help you to establish the fund that's best for your business.
Who Will Be Eligible For A 410k?
One of the first elements of your company's 401k plan design is the eligibility requirements for the fund. You'll have to decide who will be eligible to sign up for a 401k under your company's fund and what requirements they must meet. You'll need to consider factors such as the type of positions you want to offer the 401k for, how long you want employees to work for you before they become eligible, and when enrollment is available for those employees. These are the first things you should decide before you establish your company's 401k.
Will You Set Any Contribution Requirements?
There are a lot of different factors that affect the contributions your eligible employees can make into their 401k. For example, do you want to have the 401k contributions be automatic unless an employee opts out? What percentage of employee earnings do you want to have automatically contributed to a 401k?
If you'd rather make the 401k an opt-in feature instead, you'll want to think about how often employees can change their contribution percentage. Remember that changes to 401k contributions are administrative and they will take time, so consider limiting the frequency with which these changes can be made.
Finally, are you going to provide an employer match for the employee's contributions? If so, how much will you match per employee? Think about whether you want to set a limit per pay cycle or a limit for the year, and determine what percentage you're willing to match.
How Will The Money Be Accessible?
The accessibility of 401k funds is another important factor in the plan. You'll need to think about how long employees must wait for the employer contribution, if any, will be vested for them to access. Further, you'll want to make sure that you have a plan in place for employees to be able to withdraw money from the 401k plan if necessary, which can include restrictions on what they can withdraw money for before retirement.
These are some of the most important elements of 401k plan design for your company. Talk with a financial planning professional today for more help and to establish the plan that's right for your company's needs.