Safe Harbor 401(k) Plan Deadlines

Safe Harbor 401(k) Plan Deadlines

For many small business owners, establishing a Safe Harbor 401k plan is beneficial and is a choice worth looking at as it provides excellent tax and retirement benefits for both the employer and employee. 

By having a great retirement plan for your employees, you demonstrate your investment in their future, which will help you recruit and retain the best talent in the industry. 

Safe harbor deadlines are the one thing to look out for so that you don’t miss out and have to wait another year.

What’s the Purpose of a Safe Harbor 401k Plan?

As an employer, you already know that offering a 401k makes it easier for you and your employees to save more for retirement. 

The government wants to ensure everyone takes part meaningfully and benefits from the plan their employer offers.  And, as a result, the IRS has set up a series of nondiscrimination tests designed to measure whether a 401k favors ownership and highly compensated employees (HCEs).

A safe harbor 401(k) is a program designed to avoid annual nondiscrimination testing of employees’ elective contribution and employers matching contribution that’s required in a 401(k) plan.

There are two types of Safe Harbor 401(k)s; Standard Safe Harbor and QACA Safe Harbor.

Safe Harbor Deadlines

Time is of great essence when considering a safe harbor 401k plan. 

To implement a new safe harbor 401k plan, remember October 1st is the final safe harbor deadline day. 

Still, consider starting earlier than that, given you need time to send a notice of 30 days to your employees before the deadline day since you’re making a matching contribution and a few more days for initial coordination.

Essential dates when starting a new safe harbor 401k plan

  • By August 15th, set up your guidelines for safe harbor 401k.
  • By September 1st, give a 30-day notice to employees for a safe harbor matching plan
  • On October 1st, the safe harbor 401k plan is effective and exempt from nondiscrimination testing

Essential dates for an existing 401k plan

  • November 30th request the addition of a safe harbor matching provision to your existing 401k plan
  • By December 1st, send a 30-day notice to your employees
  • On January 1st, the safe harbor 401k matching takes effect and spare the plan from nondiscrimination

Is a Safe Harbor 401k Plan Right for You?

A safe harbor 401k plan is an excellent choice if your business plans to match employees’ contributions and don’t want to worry about nondiscrimination testing. 

The safe harbor 401k includes significant tax savings, and your employees will be happier. 

On the flip slide, it will increase your overall payroll depending on the amount of participation.  Small businesses should weigh the pros and cons of the safe harbor 401k before going that way.

If you need help finding which profit sharing plan makes sense for your company, schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with The Retirement Plan Evaluator.

The Benefits of Auto-Enrollment

The Benefits of Auto-Enrollment

To attract the best employees, you need to have a great benefits package.  Besides offering insurance, having an employee retirement plan is an excellent incentive for retaining top talent. 

Having a retirement plan with auto-enrollment provides great benefits to both employee and employer. 

What Is Auto-Enrollment?

An auto-enrollment plan is a retirement savings plan where employees are automatically enrolled to contribute a certain amount of their salary each payday.  Unlike a regular 401k, the employee does not have to take action or agree to participate in an employer-sponsored retirement plan. 

How Automatic Enrollment Works

Automatic enrollment is a feature that can be added to new or existing retirement plans.  They include a 401k, 403b, governmental 457b, SARSEP, and SIMPLE IRA plans.

The way automatic enrollment works is that employers deduct a certain percentage from each eligible employee’s paycheck and deposit it in their retirement account.  Employees can opt-out of the automatic deduction from their salary or change the amount at any time.

Use our Evaluator to see if you’re using the right retirement plan type for your company. 

The Benefits of Auto-Enrollment for Employers

The IRS approved plan, called the automatic contribution arrangement, which means your employees are automatically enrolled in your employer-sponsored plan.  The automatic enrollment feature encourages your employees to defer their salary by default, instead of waiting to request enrollment.

Here are the advantages of automatic enrollment:

  • More employees contribute
  • Studies show that auto-enrolled employees save more over time
  • Employers are helping their employees prepare for retirement as soon as they’re eligible
  • Auto-enrollment has significant tax advantages for employers, including deductions for employer contributions (otherwise subject to tax)

Also, under the SECURE Act, the employer will enjoy an additional tax credit of $1,500 over the first three years of the plan.

Auto-Enrollment Benefits for Employees

The main benefit of auto-enrollment for employees is that it gets them to start saving. 

Automatic enrollment puts employees on the path to retirement as soon as they are eligible to join the plan.  In some instances when default investment selections are made, it can lead to larger account balances for the employee. 

Auto-enrollment benefits both employers and employees.  The employers are helping their workers prepare for retirement, and the employees are building up their savings for when they will no longer be working.

If you need help finding which profit sharing plan makes sense for your company, schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with The Retirement Plan Evaluator.

How Does Profit Sharing Work?

How Does Profit Sharing Work?

When it comes to offering retirement benefits to your employees, you have more options than just offering a 401k.  So, how does profit sharing work?

Profit sharing can be a great option for employers who want to give their employees a little extra towards retirement, help save more towards your own retirement, or would simple rather give money to their employees than the IRS.

It’s a natural way to increase loyalty, retention, and morale, as workers directly benefit from the company’s success. 

Read on to learn more about what profit sharing is and how it can benefit you and your employees. 

How Does Profit Sharing Work?

Profit-sharing is a compensation system where employees receive a percentage of their employer’s profits in addition to their regular pay and benefits, in order to help them pay for retirement. This can be offered as cash or stock options.

Unlike a 401(k), employees do not contribute to profit sharing, and it can be offered in addition or in lieu of a traditional 401(k)

Companies can choose what percentage of their profits go to a profit-sharing plan each year, though a company doesn’t necessarily have to be profitable to have one of these plans.

This means it’s a great option for employers who need flexibility and don’t want to contribute a fixed percentage to a 401(k) year after year. If you’re having a tough financial year, you don’t have to contribute to a profit-sharing plan at all.

Use our Evaluator to see if you’re using the right retirement plan type for your company. 

Types Of Profit Sharing

If you’re interested in a profit-sharing plan for your business, there are a few different options. The three most common types of profit-sharing are:

  • Pro-rata plan – this is a plan where every employee receives the same rate of employer contributions. This rate is usually based on their salary.
  • Age-weighted plan – this type of plan has contributions that are based on their age, so it tends to favor older employees.
  • New comparability plan – this type of plan lets employers divide employees into groups and set different rates for different groups. These rates can be based on factors like how long the employee has been with the company, their age, or what department they work in. 

Profit-sharing can be used by businesses of any size, and are a great tool to keep employees motivated and invested in your success.

In fact, your plan most likely already has a profit-sharing option.  However, it might not be the correct option for your company.

If you need help finding which profit sharing plan makes sense for your company, schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with The Retirement Plan Evaluator.

How To Grow The Family Business

How To Grow The Family Business

In 1921, William and Salie Utz began selling potato chips, hand-cooked in their home kitchen, packaged in brown paper bags. Today, Utz Potato Chips is the leading conglomerate in the snack food industry. 

In today’s market, about 90% of American businesses are family-owned and controlled. Some companies, like Utz, have become full-blown enterprises that have cornered their prospective markets. While the path for every business is different and there is no clear-cut path to expansion, there are certain steps and considerations that have proven universal when looking to grow your family business. 

The path to expansion for any business requires a well-thought-out and innovative plan for what the stages of expansion should be. 

While your plan needs to leave room to be flexible and nimble to account for things like changes in the market, consumer climate, and national culture, there needs to be a relatively concrete path for how you intend to move the business forward. 

Take Stock Of the Current State of Your Business

Before you can healthily expand, you need to take full stock of the current state of your family business including revenue streams, work environment and culture, and agreement among partners in the business that expansion is the best way forward. 

According to Forbes, deciding to move a family business forward can be more difficult than some other small businesses because of the emotional attachment that is often involved. 

Make sure that all vested members are on board with the plan to expand. 

Assess Your Talent Needs

It is imperative that you make an assessment of your current workforce and decide where you need to make the first investments in attracting strong talent. 

Whether it be for a strong sales manager, an operations manager, or a business development lead, you will need to decide what steps you will take to create a position that will be attractive for ideal candidates. 

According to a survey by Glassdoor, three in five employees stated that benefits and perks were the most important aspect of a potential job offer to them, even over higher compensation. 

The top 5 most valued benefits to the employees surveyed were:

  1. Health insurance
  2. Vacation and paid time off
  3. Pension plans
  4. 401K/retirement plans
  5. Wellness programs 

While competitive compensation packages are a good way to attract talent, today’s workforce has started to lean more towards the benefits of working for a company, and how much the company will allow them to balance work, home, and health. 

Reach out to a company like Life Inc. Retirement Services to discuss options for creating a comprehensive and attractive benefits package to offer your employees.

Stay Strong To Your Values

Your family business likely has very core values that it was founded on, and expanding should not lead you to deter or sway from those values. 

Transparency and exceptional customer service are often key values of a family business, and those values should remain intact through the growth of the company. Be open with your employees and your customer about what your core values are, and reiterate that they will remain despite the expansion of the business. 

Customer loyalty is as important to an enterprise as it is to a small family business.

Scalability 

Before expanding your company, you need to ensure that the procedures and policies that you have in place can support rapid business growth. 

Streamlining and automating as many of your processes as possible is a great first step to making your family business scalable

Having too many manual processes that require manpower will inevitably begin to bog down your production and ability to grow once your amount of incoming business increases, which can result in massive operations failures and negative work culture. 

Forbes recommends five concrete steps to scaling your business that will help ensure its longevity. 

Be Patient, Be Flexible

No matter how well-devised your plan for expansion is, there will undoubtedly be hurdles and challenges involved that are unexpected and can feel overwhelming. 

Be patient in the process of expansion, and be flexible in your willingness to deviate from your plan to overcome these challenges. Make sure that you have the right people in the right positions to handle these hurdles as they come. 

Most importantly, do not forget the essence of your family business and why it was started in the first place. There is room for integrity and honesty in every part of the market.

Have more questions about growing the family business? Schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with Evaluator.

What Happens In A 401(k) Audit?

What Happens In A 401(k) Audit?

Yes, 401(k)s can be audited.  But, before you race to your file cabinet to find your records, let us explain what this means and we’ll dive into what happens in a 401(k) audit.

Federal law requires that 401(k)s and other types of retirement plans to be audited. 

The primary objective of a 401k audit is to ensure that the 401k complies with government regulations and the requirements specified within the plan documents. 

What Does A 401(k) Audit Involve?

A 401k audit looks at two major areas: 

  1. To see if the plan is compliant. The auditor wants to make sure that the plan is operating with the Department of Labor and IRS regulations as well as with the plan-related documents. 
  2. Financial reporting. They want to make sure that the financial information reported is accurate on form 5500, and the plan financial statements, including required disclosures. 

A big part of the audit is to ensure that the plan is “fair” to all employees eligible for the retirement plan.  The 401(k) audit is one way to help regulate this.

But, no reason to be stressed.  Use our Evaluator to see if you’re using the right retirement plan type for your company. 

How to Prepare For a 401(k) Audit

There are three steps you need to take to properly prepare for a 401k audit.  Doing these steps will save you a lot of time and trouble:

  • Make sure your documents are in order. Your 401k auditor will ask you to provide a lot of documents.  You will need to provide plan documents, payroll data, and time-stamped communications.  Having well-organized documents will save you a lot of time. 
  • Integrate payroll to prevent errors. You can avoid a lot of problems by integrating your payroll and record-keeping systems during your 401k deposit review. 
  • Work with professionals. You will need a good 3(16) fiduciary to handle the legal responsibilities of managing your 401k plan along with a competent third party administrator who helps you with designing the plan and the compliance around it. 

How Long Does the Audit Take?

The 401k audit process usually takes about 6 to 8 weeks.  It generally includes a short review and information request stage, 2 to 4 hours of information gathering interviews, a review of the preliminary report, and the final delivery of the audit report. 

What to Do When the Audit Is Finished 

Once your 401k audit is finished, attach the report to form 5500.  This annual report, registered with the Department of Labor and the IRS, provides information on your 401k. 

Form 5500 comes with 28 pages of instructions, that’s why it’s important to have a good team around your 401k plan to handle this annual requirement.

Have more questions about retirement administration? Schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with The Retirement Plan Evaluator.

How To Become An Absentee Owner

How To Become An Absentee Owner

“Let’s be honest.  If you’re a business owner, you’ve probably thought of how to become an absentee owner one day.  

The notion that your company cannot operate without you forces you to assume a few mundane tasks from each department, and you become the “go-to-person” every time. As much as that may appear necessary, you may also be denying yourself some time away for adventure and vacation, which will affect you in one way or another.

Being busy on the phone while addressing concerns and questions from your customers as well as managing your employees is not all that life has to offer. Maybe, you could “autopilot” your company and shift your attention elsewhere. 

Here are some tips on how you can run your business operations without being on the ground. 

You can learn which retirement plan would best fit for your company’s budget by clicking here

1. Attract High-Level Employees

Today, potential job seekers appreciate work-life balance working models and the freedom to work remotely. The implication, in this case, is that these are critical factors to consider for any employer focusing on attracting top talent.

On the other hand, creating the right working environment for your employees can increase their productivity, and in turn, micromanaging them becomes unnecessary.

In that case, attracting high-level employees is paramount. The reason is that such workers can meet or even exceed your expectations when you are not on the ground to oversee the daily operations of your company.

Yes, you might see an in crease to your overhead.  But, you have to ask yourself, what is the price of complete freedom?

2. Let Go of Anything That Ties You to Your Organization

If you are the face of your company, disconnecting from it in one way or another may be difficult. However, if you want to run your enterprise without being there physically, you need to cut any link that ties you to it.

As such, starting to transition your marketing, networking and any other customer facing materials should be on your checklist.  Consider getting rid of the “wrapped” company car or publishing your personal number on social media, websites and other materials.

Basically, start to completely remove yourself from your company’s identity.

3. Consider Delegating Roles

Delegation is the most direct path for starting the journey towards running your company on “autopilot.” 

Some of your workers can indeed handle particular tasks better than you do, while others have natural leadership qualities that you can leverage.

So, if you are planning to step away from the hands-on operations of your firm, you should prioritize nurturing competent employees to assume your responsibilities.

Conclusion

If you adopt the tips above, you can create an enterprise that runs without you, and one that honors who you are, your principles, and your input over the years.

Once you have your team in place, start to reap the benefits of what you’ve accomplished by traveling, enjoy more family time, or even start on your next venture.

If you’d like to learn how to become an absentee owner by attracting high-quality employees, schedule a plan discussion with us or take 30 seconds to find which plan is best for your company with the retirement plan evaluator.