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Considering Offering a Retirement Plan For Your Employees? Thumbnail

Considering Offering a Retirement Plan For Your Employees?

Offering incentives such as 401(k) plans can be an effective move to attract top candidates and improve employee retention. However, some small business owners have let logistical and financial concerns keep them from offering their employees such an important retirement benefit. These concerns are unfounded, as you will read below. It’s simpler than you might think.

If you’re considering offering a retirement plan for your employees, get started with these three simple steps.


When researching options for your retirement plan, it’s beneficial to look for providers that will serve you and your employees long-term. If at all possible, ask other small business owners or local networks for recommendations. Hearing from others the experiences they have had can help you determine what to look for (or what to avoid) when choosing a provider. They will often be able to share what they would’ve done differently, so you can learn from their mistakes.

It will be beneficial to look for reputable, fairly established retirement plan providers who are adept at working with small businesses similar to yours.


There are several types of retirement plans that you can offer your employees. 

Traditional 401(k) Plan

According to the Society for Human Resource Management, about 93 percent of businesses with a defined benefits plan offer a traditional 401(k) plan.1

This flexible option allows employers to make matching contributions, which can serve as an incentive for greater employee participation. The money employees choose to have automatically placed in their 401(k) is tax-deferred, meaning participants don’t pay taxes on that amount until earnings are withdrawn.

It’s important to note that traditional 401(k) plans are subject to annual nondiscrimination tests, called the Actual Deferral Percentage (ADP) and Actual Contribution Percentage (ACP).2 These tests are set in place by the IRS to determine whether or not employer matching contributions are favoring high-income earners within that business. 

Roth 401(k) Plan 

This option is similar to a traditional plan, however, contributions by employees are made with after-tax dollars. Therefore, withdrawals made in retirement will be tax-free. About 59 percent of businesses offering retirement plans opt for a Roth 401(k) plan (or similar defined contributions plan) for employees.1

Just like a traditional plan, you may choose to make matching contributions in a Roth 401(k) plan.

Safe Harbor 401(k) Plan

A safe harbor 401(k) plan is fairly similar to a traditional plan, but there are a few important variations. For example, employer contributions must be fully vested when made. Employers can choose to offer matching contributions only to employees who defer, or they can be made on behalf of all eligible employees.

Unlike traditional 401(k) plans, a safe harbor is not subject to the IRA’s strict nondiscrimination tests that must be completed annually. 

SIMPLE 401(k) Plan

SIMPLE 401(k) plans are designed specifically for small businesses as a cost-effective retirement plan option. Employers with fewer than 100 employees may use this plan, which acts similarly to a safe harbor 401(k) plan. Employer contributions must be fully vested when made, and SIMPLE 401(k) plan providers are not subject to the annual nondiscrimination tests.

Automatic Enrollment 401(k) Plan

Unless the employees explicitly choose to opt-out or change their percentage, automatic enrollment - just as it sounds - automatically enrolls eligible employees into a 401(k) plan that defers a percentage of their pre-tax earnings.


Once you have a good idea of what type of 401(k) is most suitable for you and your employees, it’s important to create the right team to implement the plan as smoothly and efficiently as possible.

Potential partners may include:

  • 401(k) recordkeepers or plan providers: Recordkeepers are in charge of keeping track of the important details of your plan. This could include who is participating, how they’re invested, when money is added/removed, etc. 
  • Third-party administrators: Having a third-party administrator (frequently referred to as a TPA) allows business owners and small human resources departments to outsource the administrative work that goes into maintaining a 401(k) plan.
  • 401(k) advisor(s): Your 401(k) advisor can essentially take the lead on assuming the legal responsibilities of your business’s plan, as well as the heavy lifting involved with establishing a 401(k) plan. Additionally, they can work with your employees one-on-one to answer questions about the plan and work to keep your plan fees down as you continue to grow.

Be sure to choose providers and partners carefully, as they can make or break the effectiveness of your 401(k) plan. Your employees are crucial to the success of your business, and establishing a plan that works in both their favor and yours is of the utmost importance.

  1. https://www.shrm.org/hr-today/trends-and-forecasting/research-and-surveys/Documents/SHRM%20Employee%20Benefits%202019%20Investment%20and%20Retirement.pdf
  2. https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview