401k Plan For A Small Business Getting Closer To Reality
Is a 401k plan for a small business viable? From many perspectives it may seem improbable. Many of the larger providers, advisors and record keepers tend to target their services towards larger 401k plan sponsors where they can gain efficiencies and lower fees to attractive levels. But a successful 401k plan is not only about fees. Many companies have discovered how to make a 401(k) plan for small a business work. And several companies have introduced new services that offer the same low fee structure enjoyed by larger plans.
Among other benefits, a 401k plan for a small business can help a smaller company compete for valuable employees with larger organizations. But with all of the regulations and management required to run a 401k plan, many potential sponsors may feel intimidated or feel that cannot afford to offer a plan such as a 401k.
That is beginning to change as new participants and new products enter the marketplace, many starting to focus on smaller-sized companies. In addition, the IRS and the DOL publish a number of helpful resources to help small employers understand the benefits and steps to take to start a 401k plan for a small business. The document contains an outline of maintenance tips, regulatory requirements and a checklist to use as a guide. In addition, there are resources for small businesses to make a decision about what types of retirement plans are best suited for small businesses.
But more importantly, service providers seeing the vast potential in the small company market are beginning to cater to this segment. This includes record keepers, advisors, third party administrators (TPA’s) and others. The 401k Help Center web site also contains a section containing links to many resources available for small business owners.
The government also provides several incentives for small business (few than 100 employees), such as tax credits and direct grants for small companies that start a new retirement plan. For companies having fewer than 100 employees, you get up to 50% of startup costs in tax credits, up to a maximum limit of $500. Further, you have the liberty to claim tax credits for three years starting with the year before which the tax plan comes into effect. These tax credits will help in cutting the startup and administration cost of the retirement plan.
The market forces and regulatory forces are converging towards a viable scenario for small businesses to start a retirement plan.
