Setting up a 401(k) savings plan for a small business is relatively easy. Start by contacting a major financial institution or brokerage that offers 401(k) programs.
It's a good idea to ask fellow business owners and colleagues for referrals. "Once you identify an appropriate provider, you will be asked to supply information about your company and its employees, such as their start date, employee status and levels of compensation," said Willard Brumbaugh, an insurance and annuity agent based in Apple Valley, CA.
The company will prepare several options for consideration. One critical decision every employer faces is how much money the company can commit to the plan, Brumbaugh pointed out.
For example, some employers may choose to match 50 percent of every dollar contributed by the employee, up to six percent of the employee's earnings. Others may choose not to participate in a matching program at all.
Consider the provider's service quality and past performance. Ask for examples of plans they have provided. In addition, look for the company to provide high quality communications materials that will resonate with your employees, advised David Wray, president of Profit Sharing / 401k Council of America, a nonprofit organization based in Chicago.
Create your own pension plan. Wray advises talking to at least three different providers. Choose the option that most closely matches your company's goals.
Make sure that fees are clearly explained and that you're paying a reasonable price. "You may want to consult a third party financial advisor or CPA to help you evaluate your options or manage the plan," Wray added. "Every owner/manager needs to look in the mirror and determine his or her own comfort level with the decision making process," Wray said.
For self employed individuals, a solo 401(k) is also becoming a popular option. The process is the same as outlined above, and starts with contacting a provider.
Information in this article was edited from a story in Fortune Small Business magazine.
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