Question: What important information should I be aware of before setting up a 401(k) plan for the employees of my small business?
The fact that you’re considering a 401(k) plan indicates that you are serious about attracting and retaining top-notch employees by helping them plan for retirement. A satisfied and loyal employee tends to be a more productive one, and that’s always good for business.
Most small businesses find the most cost-effective way to establish and maintain a 401(k) plan is to use the services of an outside professional rather than taking on this formidable chore yourself. Handling the plan’s myriad administrative details is practically a full-time job and will consume time and energies better spent on running your business.
We recommend choosing a full-service provider, which offers a “one-stop” solution for managing the plan’s range of administrative services and investments. It’s very important that the plan provider you choose offer a diverse range of investment and asset allocation funds that have different risk and return characteristics. By diversifying contributions, employees make into funds with varying levels of risk and return, employees minimize the overall risk to their portfolios.
You’ll also want the provider to offer the capability of online access so employees can manage as many of the administrative details as possible themselves rather than placing the burden on you or the provider. Employees should have daily account access and the ability to make online changes, transfers or transactions. This will save substantial time related to education and administrative functions.
In order for your plan to really take hold, you need a professional who can conduct a highly charged and informative orientation meeting. The idea is to create excitement about the plan and encourage as many employees as possible to enroll in order to make it worth everyone’s while. The plan’s representative should also hold annual meetings with plan participants as a way of maintaining their enthusiasm and continuing the plan’s momentum.
When shopping around for a qualified provider, consider their experience, how long they’ve been in business and who their clients are. Make certain they can provide 24/7 service through direct contact or a Web site. And be sure they are capable of providing consistent and timely reporting and have a proven record of investment success.
Written by Barbara Williams and Gloria Foote, certified financial planner practitioners and partners in Financial Focus of Carlsbad.