Are You Offering a Competitive 401(k) Plan?

Chloe Quigley, Business Exit Planning Advisor, CEPA

Come November 2023 in Illinois, businesses with 5 employees (including part-time workers) are required to offer 401(k) plans.

But this is could be good news for you, business owners, and your employees: The tax credit for businesses with 50 employees has doubled since the original provisions were set in 2019. What does this mean?

It’s time to set up and improve your 401(k) plan for your employees.

As you consider this opportunity, it is important to ask yourself: What makes one 401(k) option better than another?  Where does one even start to compare?

To give you a starting point, you can consider the below:

Technology

You want to give your employees the best benefit at the lowest cost to you and your business. You want it to be scalable as your business grows. You want minimize your time commitment to monitor and manage the plan and avoid any problems or errors.  less time and manpower needed on your end.

Modern technology that automates a lot of the time-consuming administrative work will help you focus more on your strengths. Further, having a user-friendly website that is manageable for participants relieves employees of common obstacles that deter them from saving for retirement.

Transparent fees

You want to understand how the plan fees are structured. You want to feel confident and comfortable that your chosen plan fits into your plan for the business over the next 5-10 years. your business’ 5–10-year plan. If you’re expecting growth and planning to hire, make sure your plan can sustain the growth that you want with a competitive pricing model.

Flexibility

Your business and employees have unique needs. Depending on the demographics of your employees, you want to make sure you can structure the plan that meets their needs. You want a partner, not just a provider, that will help you understand all your options and how they can change depending on your and your employees’ needs.  A quality 401(k) is a competitive advantage for you in a tight labor market.

Your trusted advisor can help.

Finding the right partner, and choosing from the many options available, can be an overwhelming task. Our advice: turn to your trusted advisors and other business owners in your network. Who are they partnering with and why? How has their experience been? Also, listen to your employees and try to understand their needs. There are additional provisions in SECURE Act 2.0 that will benefit employees’ various needs such as paying off student debt and those that prefer their employers to contribute directly into their Roth account.

401(k) plans are now more accessible today for small businesses. For example, businesses with under 50 employees can receive up to a $5,000 credit for administrative expenses for the next three years, in addition to $1,000 credit per eligible employee.

Additionally, newly defined contribution plans automatically enroll employees once they become eligible to participate in the employer’s retirement plan. Meanwhile, the employee can elect not to participate in the plan if they would like. The Act also shortens eligibility requirements for part-time workers who now need to work at a company two years rather than three prior to becoming eligible.

Helping you stay competitive.

For the business owners that we partner with, these changes offer a new lens to review the benefit of a 401(k) plan. Will they remain competitive in the marketplace? How does their current plan align with their long-term goals? Most importantly, are their key employees happy and how can a business owner keep them that way? With our partnerships with Vestwell and other providers, we can help walk owners through these decisions and give their current plan a second look.

If you’re interested in this consultation, please reach out to our team today.

Chloe is a non-registered associate of Cetera Advisor Networks.

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