In today’s competitive marketplace, any thriving business should consider establishing a 401(k) employee benefits program. According to the U.S. Department of Labor, there were about 200,000 401(k) plans in the U.S. in 1995.
The business benefits are rooted in recruitment, retention and tax savings. To have a winning 401(k) plan strategy, you must come to agreement on fees, operations procedures, investment options and employee education with your plan administrator. The right mix of these elements will produce a plan that will be profitable for everyone.
Once you decide to set up a 401(k) plan, the next step is to decide which company can implement the best plan for your business. You’ll need to form an employee benefits planning committee to gather information on all the different types of companies that are authorized to set up 401(k) plans and other retirement options.
“Many companies set up an employee benefits planning committee comprised of management and line employees,” says Jeff Boyle, senior vice president of business trust services for Union Bank of California. “They make decisions for the plan with equal representation.”
Banks, brokerage houses, insurance companies and payroll administrators are among the companies that can set up your plan. Your committee must create a preliminary list of things the plan should offer, including whether your company will match employee contributions and the type of access you’d like employees to have to their accounts (via phone or the Internet). It can meet with plan administrators and then decide which firm can best meet your company’s needs. The committee may even find that a 401(k) plan is not the best retirement option for your business.
Fees. The cost of doing business with each plan administrator will vary. Your employee benefits planning committee must determine how much your company will want to pay for the bookkeeping and administration of your 401(k) plan.
In general, “as the number of employees grows, the fixed cost of running the plan goes down,” says Boyle. If your company has fewer than 10 employees, you should seriously consider other retirement plan options. Companies with 25 or more employees will get the most benefit from 401(k) plans.
According to Karen DeCoud, Merrill Lynch vice president and retirement plan manager, it costs an average of $800 to $1,500 per year to set up and administer a 401(k) plan for 20 employees or fewer. Merrill Lynch doesn’t administer plans with fewer than 25 people, but DeCoud says a plan with up to 100 employees costs about $4,000 per year; and for up to 300 employees, about $7,000 per year. “For companies larger than 300 employees, the plans are structured based on participation,” she says. Fee ranges vary widely between banks, brokerage firms, insurance companies and others, so shop around for the best possible price.
Operations procedures. You will have to designate a benefits planning committee member to work with the plan administrator to do the bookkeeping and government compliance testing for the plan. Bookkeeping involves such things as preparing taxes for the plan, ensuring that the proper payroll deductions