How to launch a 401(k): 4 easy steps

Tiffany Meyers

When you launch a 401(k), you send a powerful signal to current and future hires that you’re committed to taking care of them — and for life. But as a founder/owner, you’re spinning so many plates it can be easy to neglect this complex offering. So we turned to Sean Condon, wealth advisor at Windgate Wealth Management, who breaks it down for us in four easy steps.

Determine if the time is right. First, ensure that you can afford the administrative fees (a few thousand dollars annually) that come with a 401(k). Then look for clues from your people: Are employees asking for a 401(k)? Do job applicants seem to expect it?

“Those are two strong indicators that the time is right to offer a plan,” said Condon, a Certified Financial Planner.

If a 401(k) isn’t in the stars, however, don’t give up. An advisor can help you find lesser-known retirement options that are effective and cost efficient for small companies in particular.

Decide if you’ll offer a match. Beyond the relatively conservative administrative fees, cost becomes a bigger issue when you offer a company match. Matches are measured in a percentage of employees’ salaries. For startups, this is typically about 0.25 percent on the low end up to 3 percent, with flexibility from year to year. Be sure you can meet those cash flow obligations now — and over the long haul. As you scale from 20 to 200 employees, costs grow commensurately. 

"If you decide not to pursue a match, just communicate to your people: ‘We’re not offering a match now but it’s something we might do in the future,’” Condon offered.

Select a partner. Engage an insurance company, brokerage firm or investment firm to establish your plan and act as its trustee. As you do, consider this word-to-the-wise from Condon: Not all of these providers act as fiduciaries to their clients’ assets. Be sure to work with a firm that does so, protecting your best interests, and not a provider that sells only their own products.

“You need your partner to offer low-cost fund options that are the best fit for your employees and translate into higher account balances for everyone,” he said. “Beware conflicts of interests.”

Give your staff a 401(k) education. The work doesn’t stop at implementation. Now that you’ve made this financial perk available, let employees know how they can get the most out of it. Unless people understand its value, you miss the chance to earn more of their esteem, respect and loyalty.

Engage your advisor in educating your staff about the intricacies of the plan, like by holding a training about how much should they put away — and how often. This support can contribute to what Condon calls “financial well-being," or a sense among your people that their financial future is strong.

“If employees feel good about their financial outlook, and that’s in part because of you, they’ll come to work less distracted and more engaged in your mission,” he said. 

 

Photo via Shutterstock.

Windgate Wealth Management designs company retirement plans, including 401(k)s, and offers financial wellness benefits to provide for employees, increase personal wealth and reduce tax liability. Learn more.  

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