The Startup Business Owner’s Guide to 401(k)

There are dozens of issues that a startup business owner must address, from the basic (revenue generation and supply chains) to the complex (marketing strategies and information technology) to the forward thinking (business plans and future growth opportunities). So it can be easy to forget about employee incentives like a 401(k) program.

The Startup Business Owner's Guide to 401(k) - Easy Home Internet Business Pic 1 With that in mind, here is a guide for 401(k) planning for the startup business owner.

Provide a wide range of options. Your employees will have different comfort levels when it comes to investing, so you should offer a wide range of plans ranging from low-risk to aggressive returns. Ideally, you should give them at least twenty distinct 401(k) asset choices to pick from, including stocks, bonds, mutual funds, money markets, real estate trusts, commodities, and other fund classes.

Examine the funds’ past performance. Granted, this is not necessarily an accurate predictor of how the funds will perform in the future. But you can bet that your employees will want to know their funds’ track records – especially during recent economic downturns.

Note all the fees that are charged by plan providers. The higher the fees, the more difficult it will be for your employees to grow their savings. So make sure all fees assessed by funds and plans are clear, reasonable, and well-monitored.

Provide retirement savings calculator. These types of calculators can often be found on the web, and a few fund providers might even offer them as well. If employees can see how their savings will grow over time, they’ll be more likely to invest part of their paycheck in a 401(k).

Put a great deal of thought into employer matching. Not only can matching encourage employees to enroll in a 401(k), but it may also offer a competitive advantage to your company in the battle for high-quality personnel. Typical contribution-matching arrangements include dollar-for-dollar for up to 3% of a paycheck, or a dollar for every two invested by the employee up to six percent of a paycheck.

The Startup Business Owner's Guide to 401(k) - Easy Home Internet Business Pic 2Choose your 401(k) fund administrator carefully. Many companies offer turnkey 401(k) solutions to businesses which include fund administration, but don’t assume that they are always less expensive than so-called “unbundled” plans. You might think about choosing an independent investment advisor to oversee your company’s plan

Consider auto-enrollment for employees. In other words, employees have to opt out of enrolling in a 401(k) program at your company instead of opting in. If the default option is to help your employees invest, their financial futures are more likely to be stronger than if they have to proactively enroll in a plan.

Consider auto-escalation for plans. Auto-escalation simply means that as each employee receives raises and/or job promotions, their 401(k) plans are adjusted accordingly unless the employee chooses to make a change. This prevents repeated 401(k)-related paperwork every time an employee’s compensation changes.

The Startup Business Owner's Guide to 401(k) - Easy Home Internet Business Pic 3Consider rebalancing as your employees age. You can set up your 401(k) plan so that as your employees age, the level of risk in their investment portfolios is automatically reduced. This helps guarantee a more stable savings rate for employees who are closer to retirement.

Don’t forget about employee education. It’s helpful to bring in investment advisors periodically to speak with your employees about their 401(k) plans. Not only does it increase your workforce’s engagement in its savings strategy, but it also protects your company from litigation if retirement plans stagnate because you increase the expectations of personal responsibility with respect to your employees 401(k) plans.

As a business owner, it behooves you to stress the need for investing in a 401(k) plan. Click here to learn more about how to choose a 401(k) plan.

By offering your workforce attractive savings choices and helping them set up a retirement strategy, you’re demonstrating that you care about the future well-being of your employees – and that won’t go unnoticed by the people who work for you.

Chris Martin is a freelance writer about topics ranging from home improvement to finance to online reputation management.

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