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  • If you’re a business owner, you know how hard it is to keep up with all aspects of your business. You have to manage your employees, ensure the product is coming in on schedule, and keep track of all the different projects you’re working on. In addition, then there’s the day-to-day work of running your business-managing your employees’ paychecks, paying bills and taxes, and keeping track of inventory. The list goes on and on!

    However, if you’re like most business owners, you don’t have time to take care of your retirement savings on your own. That’s where a 401(k) plan comes in—they make managing these savings easy! Many business owners choose to offer 401(k) plans to their employees without considering the intricacies. Many resources are available to help you understand 401(k) plans, but they aren’t always easy to understand. This guide is designed to help business owners better understand how 401(k) plans operate, including the main benefits offered by this type of retirement account.

    Why Should My Company Offer A 401(k) Plan?

    If you’re a business owner, you may be wondering what a 401(k) is and how it can benefit your company. A 401(k) is an employee benefit plan that allows employees to save money for retirement. When you contribute money to a 401(k), it’s usually taken out of your paycheck before taxes are calculated. This means that the amount of money actually deposited into your account is lower than the amount of money being withheld from your paycheck.

    While there are many different types of 401(k) plans, the most common type is called a defined contribution plan. In this type of plan, you choose how much money you want to contribute to the plan each year—and how much will be deducted from each paycheck. Then, when employees reach the retirement age of roughly 60, they can begin withdrawing funds from their accounts without incurring penalties or taxes on those withdrawals (unless they withdraw more than they’ve contributed).

    How Does A 401(k) Work?

    You set up an employee contribution plan with the financial institution that manages your company’s 401(k) plan, typically called an “investment manager.” The employee contribution plan will tell them how much money to take out of each paycheck and put in their account each month.

    The investment manager will then invest that money for you based on certain parameters set by you and/or your company, such as what kind of investments to make. They’ll then give you periodic reports about how much money has been contributed.

    Types Of 401(k)Plans

    Traditional: This option allows you to deduct contributions from your taxable income, which means that your contributions will lower your overall tax bill at the end of the year. Traditional funds can also be rolled over into an IRA when you retire or leave your job.

    Roth: With this option, you pay taxes now but can withdraw funds tax-free when you retire or leave your job. You cannot roll over Roth funds into an IRA once they’ve been deposited into the account; however, there are some exceptions based on age and other factors.

    Profit sharing plans: These are plans where the employer contributes a set percentage of its profits into each employee’s 401(k) account on an annual basis, usually four or five percent. The employee doesn’t get to choose how much money goes into their own account; instead, they take home whatever amount is left over after all contributions have been made by the employer and employee combined together.

    Defined contribution plan: This is the most common type of 401(k) plan. The employer decides how much money to contribute, and each employee can also choose to make voluntary contributions.

    Defined benefit plan: In this type of plan, the employer agrees to pay a specific amount of money to the employee at retirement based on their number of years of employment, salary level, and other factors. The amount that an employee receives from a defined benefit plan will depend on their age and salary at retirement.

    How Do I Choose The Right Plan?

    401(k) plans are an important option for business owners, but they can also be very confusing. There are many different types of 401(k) plans, and each one has its own set of rules and requirements. If you’re a business owner and you want to start offering a 401(k) plan for your employees, it’s important to choose the right one. Here are some tips on how to do that:

    1. Find out if your state requires a certain type of 401(k) plan. If it does, then you’ll need to make sure that the plan you choose matches those requirements. Otherwise, your employees won’t be able to participate in the plan if it doesn’t meet state standards. You can find out what types of plans are available in your state by contacting your local Department of Labor or Small Business Administration office.
    2. Make sure that any fees associated with managing your 401(k) plan are reasonable compared with other plans offered by other companies in your area (or even across state lines). If not, then look into other options until you find something more affordable for you and your employees!
    3. Make sure that the investment options available through this plan will allow you to grow your money without risking too much—but also without taking too much risk!

    How Do I Start?

    401(k) plans are an important part of ensuring your workers have a secure retirement. They’re also a great way to attract and retain talented employees. Below is a step-by-step guide to getting started:

    • Start by contacting a broker or financial advisor for help setting up the plan. They can help you determine what kind of plan is best for your company, including whether or not you should include matching contributions. You may even choose to work with a professional employer organization (PEO) to handle all of these logistics for you.
    • Next, determine how much money you want to contribute to the plan each year. You can decide on any amount, but it’s recommended that you contribute at least enough so that each employee receives at least three percent of their annual salary as a contribution from their employer.
    • The next step is to determine whether or not you want employees to be able to contribute on their own. If so, make sure they understand the limits that apply and how much they can contribute without penalty (in most cases, it’s $18,500).
    • Finally, decide how much money will be taken out of each paycheck towards paying into the plan each month, quarter, and/or year, depending on what works best for your company’s budgeting cycle.

    During this process, you need to decide whether or not to hire a professional employer organization (PEO). A PEO will take care of many of the administrative tasks involved in setting up and managing a 401(k) plan for you—including payroll processing, tax filing, and benefits administration—so that you can focus on running your company.

    Let’s Talk About Your 401(k) Options

    Introducing 401(k) plans to your employees can be one of the best decisions you make as a business owner. Not only is it a great benefit for your employees, but it’s also an excellent way to attract new talent and keep your existing team happy.

    But if you’re unsure how to get started, we’re here to help!

    GMS offers a variety of 401(k) plans that are customizable and easy to use. We’ve been helping small businesses similar to yours get their feet wet with this exciting new benefit for years, and we’d love to help you, too. Contact us today!

  • As of January 1st, 2023, employees in California whose employers do not offer retirement plans now have access to an optional retirement savings plan. This plan will be a state-facilitated retirement savings program through the Colorado SecureSavings Program. The Colorado SecureSavings provides businesses with a convenient way to help their employees save for their future. If you’re a business owner who:

    • Has been in business for two or more years
    • Has five or more employees
    • Does not have a retirement savings plan in place

    You are now required by law to offer a retirement savings plan. Should you fail to provide your employees with one of these plans, you will face hefty fines levied by the state of Colorado.

    Who Qualifies For This Program?

    Any employee who is at least 18 years of age and has earned wages in Colorado for at least 180 days is eligible and automatically enrolled in the program. Employees will have 30 days following the enrollment date to opt-out or customize their contribution amounts, investment options, and beneficiaries. Suppose your employees choose not to opt out within this 30-day time frame. In that case, they will automatically have five percent of their compensation withheld on an after-tax basis and contributed to a Roth Individual Account (Roth IRA). A Roth IRA is an individual retirement account that offers tax-free growth and tax-free withdrawals in retirement. In addition, every January, contributions will automatically increase by one percent up to a maximum of eight percent unless the employee adjusts it.

    Should an employee not make an election on how their Roth IRA is to be invested, it will automatically be invested in the Capital Preservation Option. Capital preservation refers to an investment strategy where the main objective is to preserve capital and avoid losses in an investment portfolio. In utilizing this strategy, investments typically comprise the safest short-term investment products, including fixed deposits and bonds. It will then be transferred to the Target Retirement Date Option with a target date closest to the employee’s expected year of retirement.

    What You Should Know As A Business Owner In Colorado

    As with any law, as a business owner, you must know what every law entails and how it affects you, your business, and your employees. With this new law in Colorado, you will face hefty penalties if you don’t comply. It’s essential that you understand the following components of the law:

    • If you don’t sponsor a retirement savings plan for your employees, you must provide your payroll vendor’s name, payroll schedule, company bank information, contact information, and employee roster
    • Employees will then be automatically enrolled in the SecureSavings program
    • Employees hired after the date of registration must be enrolled in the SecureSavings program within 180 days of their hire date
    • You must update participating employees’ contribution rates within your payroll system
    • Contributions must begin with the payroll immediately after the 30-day opt-out period has passed
    • You must keep employee rosters and payroll contribution information updated
    • You are prohibited from setting up or managing employees’ accounts, managing investment options, or answering questions about the program
    • You are not permitted to provide any tax, legal, or other financial advice
    • Your employees will receive a Form 5498 directly from the trustee of the program no later than May 31st every year

    Save Yourself The Headache, Partner With GMS

    We understand that staying on top of, yet another law is a lot to take on. You wear many hats as a business owner and don’t have the time or money to manage every aspect of your business. When you hand off the administrative burdens of your business to GMS, you can finally focus on what you do best – growing your business. GMS helps with profit sharing and 401(k)s for small businesses. In serving as the plan’s co-sponsor, PEOs can leverage group buying power to reduce plan costs for small businesses and take on the fiduciary burden to ensure you remain compliant with your 401(k). We can help you set up fully customizable retirement savings plans that make your company more attractive to quality employees. When you partner with GMS, you can easily establish the following:

    • 401(k) eligibility requirements
    • Vesting schedules
    • Tax-deductible matching
    • Profit-sharing contributions

    Check this off your to-do list for the week. Contact us today to learn more.

  • As 2023 is in full throttle, it’s time to start thinking about your new year’s business resolutions. Whether you’ve started prepping for this year’s goals or not, it’s time to consider how to enhance your business functions. As a small business owner, you may want to start by providing your employees with a retirement savings plan. This can be intimidating, and you might not know where to start. However, we’ve provided you with a variety of different ways in which you can offer your employees a retirement plan to set them up for success.

    Let’s Start With The Basics

    An individual retirement account (IRA) is a long-term savings account that individuals with earned income can utilize to save for the future while enjoying certain tax advantages. Money held in an IRA typically cannot be withdrawn before the age of 59 ½ without incurring a significant tax penalty of 10% of the amount withdrawn. In addition, there are a variety of IRAs individuals can utilize, including:

    • Traditional IRAs
    • Roth IRAs
    • Simplified Employee Pension (SEP) IRAs

    For a deeper dive into these various retirement plan options, click here. 

    Is The Safe Harbor 401(k) The Right Fit For Your Business?

    When it comes to retirement plans, not all are inexpensive to establish, nor are they easy to maintain. Recently, businesses have begun implementing a Safe Harbor 401(k). A Safe Harbor Plan 401(k) is similar to a traditional 401(k) plan; however, it must provide for employer contributions that are fully vested when made. These contributions may be employer-matching contributions that are limited to employees who accept, or employer contributions made on behalf of all eligible employees, regardless of whether they make elective deferrals. You can forgo annual nondiscrimination testing in exchange for required contributions, which ultimately helps reduce your duties as the plan administrator.

    While a Safe Harbor plan offers many benefits, it makes it easier to save for your own retirement while also helping your employees become ready for their retirement. Business owners may contribute up to $20,500 tax deferred, lowering their personal tax liability. On top of that, the employer-matching contribution you provide for your employees is a tax deduction.

    Partner With GMS

    Offering a retirement plan to your employees is essential to recruiting and retaining quality employees, but it’s a benefit with a lot of complexity and risk. Yes, all of these plans sound great, but do you really want to take the time out of your already busy schedule to implement this? Fortunately, when you partner with GMS, we’ve made it easy for you to give your employees what they want and need, all while doing what you do best – growing your business. Our partnership provides you access to our small business 401(k) plan administration services. You can also offer your employees a profit-sharing 401(k) plan!

    By implementing a profit-sharing plan, you can show employees they are critical to your company’s success by rewarding them for their hard work. Partnering with a PEO like GMS helps you with the following:

    • Cut costs and reduce stress
    • Save time
    • Offer benefits your employees want the most

    To learn more, contact us today. 

  • Retirement planning is the process of setting income goals, followed by the actions and decisions necessary to achieve those goals. This includes classifying sources of income, sizing up expenses, implementing a savings program, and managing assets and risk. Retirement planning is the financial strategy you take in saving, investing, and ultimately distributing money meant to sustain oneself during retirement. Planning prepares individuals for life after their income ends.

    Depending on where you are in your life, whether you’re a recent college graduate or five years into your career, your retirement plan will constantly change. If you’ve just entered the workforce, your main goal will be to save a certain percentage of your income. Once you reach the median portion of your career, you may want to consider increasing your specific income or target goals and take steps to achieve them.

    As a small business owner, you may have never thought about offering retirement plans to your employees. If nothing else, consider it as a recruiting tool – employees are concerned about their future and are looking for employers to provide peace of mind. The purpose of offering retirement benefits is to increase the economic security of your employees. Offering one has numerous benefits:

    • Attract and retain quality employees
    • Lower income taxes
    • Supersize retirement returns
    • Payroll deductions
    • Long-term compounding
    • Creditor protection
    • Pre-tax contributions
    • Employer contributions 
    • Roth contributions

    If you are wondering if you should begin offering this type of benefit to your employees, you first want to explore the different options available. Continue reading to see which option(s) might be the best fit for your business.

    Retirement Plan Options

    Traditional IRA

    A traditional IRA is available to anyone offering a wide range of plans and investment options. IRA stands for individual retirement account – meaning, they are tax-favored savings plans that are, for the most part, opened and managed by individuals themselves. Any individual who has taxable income can contribute to a traditional IRA.

    When making contributions to a traditional IRA, it reduces your taxable income while the money grows tax-free until you withdraw it. It is very similar to a 401(k) plan; however, the contribution limits are much lower in a traditional IRA. As of 2022, the contribution limits are $6,000 if you are under the age of 50 or $7,000 if you’re 50 or older. Individuals do not pay income taxes on their contributions, but instead, you pay taxes when you withdraw the money from your account at a specified time.  

    Roth IRA

    The main differentiator between a traditional IRA and a Roth IRA is when you receive the tax benefits. For a Roth IRA, you pay taxes on the money you contribute. This means that when you withdraw your money, you withdraw it tax-free at the time of retirement.

    To decide which plan to go with, the traditional or Roth IRA, experts have said to determine whether you expect to be taxed at a higher or lower rate when you retire. Many individuals create their retirement plans assuming that they’ll fall into a lower tax bracket once they retire. If you feel that you won’t be in a lower tax bracket when you retire, you could pay less income tax with a Roth IRA.

    When contributing to a Roth IRA, you are allowed to withdraw money after the age of 59 ½. However, there are several exceptions to the early withdrawal penalty. Should you purchase your first home, have an extensive amount of college expenses, or have a child, you might be able to withdraw from your Roth IRA with no penalty. With that being said, you are only able to contribute to a Roth IRA if your annual income is below a specific threshold.

    SEP IRA

    A SEP IRA stands for a simplified employee pension. This type of retirement plan is used mainly by self-employed individuals or small business owners. If you’re a business owner, this plan may be cheaper and easier to operate as opposed to a 401(k) plan.

    With a SEP IRA, you have the capability to put away a greater amount of savings each year. An employer can contribute up to 25% of each employee’s income, up to a maximum amount of $61,000, as of 2022. If you’re self-employed, you’re able to contribute up to 25% of your net income up to $61,000. With a SEP IRA, individuals are 100% vested in employer contributions. However, the immediate vesting of employee benefits may be a disadvantage for employers since the employee will take the money with them when they leave.

    Simple IRA

    A simple IRA is a retirement plan option for small businesses with 100 employees or less. Simple stands for savings incentive match plan for employees – meaning, employers must do one of two things:

    1. Match employee contributions up to 3% of the employee’s salary
    2. Contribute 2% of an employee’s salary regardless of any contribution from the employee

    Simple IRA plans offer a substantial source of income at the time of retirement by allowing employers and their employees to set aside money within retirement accounts. The main differentiator between conventional retirement plans is that with a simple IRA, there are no start-up and operating costs.

    With this type of retirement plan, employees are always fully vested which means no matter when the employee leaves the company, they can keep all the employer’s contributions. In 2022, employees can contribute a maximum amount of $14,000 of their annual salary or if they’re over the age of 50, they can contribute up to $17,000.

    401(k)

    The most popular option for a retirement plan is a 401(k). According to the Internal Revenue Service (IRS), a 401(k) is a feature of a qualified profit-sharing plan that allows employees to contribute a portion of their wages to individual accounts. The plan can be a profit-sharing, stock bonus, pre-ERISA money purchase pension, or a rural cooperative plan.

    An employee who signs up for a 401(k) agrees to have a portion of each paycheck paid directly into an investment account. Some employers may decide to match part or even all the employee’s contributions. There are two basic types of 401(k) plans – Traditional and Roth.

    The money in your 401(k) grows tax-free until you withdraw it. Once you choose to withdraw it, you’ll pay income tax on the money you take out. However, you must be 59 ½ or older to withdraw your money from the 401(k) plan without a penalty. You are also required to start withdrawing money from your plan at the age of 72.

    Most employers tend to offer 401(k) plans because they have fairly high contribution limits. In 2022, you can contribute up to $20,500 or $27,000 if you’re over the age of 50.

    Tom Smith, Director of Retirement Services at GMS, stated, “For employees, a 401(k) holds numerous benefits. Contributions are deducted directly out of their paycheck versus the employee having to send money to an account themselves. If their employer matches contributions, then it becomes a no-brainer for the employee to participate because they leave free money on the table if they do not.”

    Solo 401(k)

    A Solo 401(k) assists in maximizing retirement savings for individuals who are self-employed and business owners that don’t have employees. These plans are also known as individual or one-participant 401(k) plans. A Solo 401(k) is very similar to a standard 401(k) plan, except for the ability to boost your savings by contributing as both the employer and employee. 

    Individuals can contribute up to 100% of self-employment income with a maximum amount of $20,500 or $27,000 if you’re over the age of 50. In addition, you can act as the employer since you’re self-insured and contribute up to 25% of your business’ income. This may be the best option for those who are self-insured as you may be able to contribute more with this dual contribution formula.

    Partner With GMS Today

    No matter which retirement plan you choose, they all provide tax advantages as incentives to save for retirement. Now, you may still have a handful of questions and are still hesitant if you should offer a retirement plan to your employees. GMS is here to help. A PEO like GMS can leverage group buying power to reduce plan costs for small businesses and take on the fiduciary burden to ensure you remain compliant. As a business owner, you can stop wasting time trying to make sense of your legal responsibilities when you partner with GMS. With GMS, you easily establish: 

    • 401(k) eligibility requirements 
    • Vesting schedules
    • Tax-deductible matching
    • Profit-sharing contributions

    For more information about offering retirement plans to your employees, contact our experts today.

  • The Illinois Secure Choice Savings Program (Secure Choice) allows workers to save money for retirement on their own. This is required for any business in the state of Illinois that has at least five employees, has been in business for two or more years, and does not currently offer a retirement plan. Businesses who fall into this category must begin offering a qualified plan to their employees, or automatically enroll their employees into Secure Choice.

    Program Overview 

    Participants of the Secure Choice Program are enrolled in a default target-date Roth IRA with a default five percent payroll contribution. However, participants can change their contribution level or fund option at any time or choose to opt-out of the program. Employers register their employees for this program so that accounts can be created, and payroll contributions can be made.

    The Illinois Secure Choice Program differs from a traditional retirement plan. When enrolled in the Secure Choice Program, employers are not considered plan fiduciaries, they do not pay fees, they do not make contributions into their accounts, and they’re not responsible for plan paperwork or administration. Instead, the Secure Choice is run by a seven-person Board with Treasurer Michael Frerichs serving as Chair. Frerichs office administers Secure Choice on behalf of the Board, and then partners with private-sector financial service firms for a variety of services.

    The Secure Choice Savings Program launched in 2018 with a phased implementation that’s based on employer size. The next phase in this program begins in November of 2022 for businesses that consist of 16-24 employees.

    Employer Registration Deadlines

    Depending on the size of the employer, program deadlines vary. The deadline for businesses with 16-24 employees is November 1st, 2022, and the deadline for 5-15 employees is November 1st, 2023. Any employer who does not meet their required deadline may be subject to enforcement which could consist of financial penalties. The Illinois Secure Choice Program has over 97,200 participants as of December 1st, 2021. Altogether, these participants have saved nearly $80 million for retirement.

    Partner With A PEO Today!

    Employers face a constant challenge today in retaining good talent. It’s more important than ever for employers to offer their employees a retirement plan, in order to attract good talent. The constant change in legislation adds strenuous time and energy to your business. When you partner with GMS, our experts help you navigate through these changes and assist in the process of enrolling your new employees. Do what you do best and outsource the rest!

  • In March of 2019, Governor Phil Murphy signed the New Jersey Secure Choice Savings Program Act to close the retirement savings gap. This Act created the Secure Choice Savings Program which was designed to provide a private path for employees to save for retirement. This means that certain employers are required to establish a payroll deposit retirement savings plan that permits eligible employees to take part in the program.

    Although the implementation of the program remains in the works, the new website is now operational as of April 2022. More information is expected soon which will include the next steps concerning how to implement this program in your business. To keep up to date on this Act, visit their website today.

    Employers Subject To The Act:

    The Secure Choice Savings Program applies to any person and entities that are engaged in a business, industry, profession, trade, or other enterprise within the state of New Jersey that:

    • Have not employed fewer than 25 employees in the state the previous calendar year
    • Have been in business for at least two years
    • Have not offered a qualified retirement plan in the past

    Qualified Retirement Plans:

    There is a common misconception that plans must be offered as a 401(k). However, there are a variety of qualified retirement plans offered to an employer, to avoid complying with the Act. These include Sections: 401(a) and (k), 403(a) and (b), 408(k) and (p), 457(b), or a plan sponsored by a PEO.

    How Employers Will Comply:

    To comply, covered employers must follow the steps below: 

    • Establish a payroll deposit retirement savings arrangement no more than nine months after the Board opens this program for enrollment. Each employee that will enroll in the program will be able to choose their individual contribution level.
    • Each employee who has not opted out will be automatically enrolled in the program.
    • Deposit deductions from employees’ payroll into the program.

    As this new Act rules out, employers are permitted to contract with a third party. A third party means partnering with a Professional Employer Organization like GMS, who will perform the tasks listed above on behalf of the employer.

    What This Act Means for Employees:

    Employees that were hired more than six months after the Board opens the program for enrollment and have not opted out, will be automatically enrolled. New employees who are eligible to enroll, will be automatically enrolled. New employees will be eligible to enroll annually. Employers are required to have an annual open enrollment period where eligible employees are able to change their elections under the Program. That also means that any employee who opted out in the previous year will be able to opt in during the new enrollment period.

    Penalties for Employers:

    Any employer who fails to enroll any employee without a reasonable cause in a timely manner is subject to the penalties listed below:

    • A written warning for the first calendar year in which a violation occurs.
    • For the second calendar year, there will be a $100 fine when a violation occurs.
    • For the third and fourth calendar year, there is a $250 fine for each employee who was not enrolled in nor opted out of participation in the program.
    • For the fifth calendar year and the years to follow, there will be a fine of $500 for each employee who wasn’t enrolled in nor opted out of participation in the program.
    • There will be a first offense penalty of $2,500, and a $5,000 fine for the second offense and each offense following when the employer collects employee contributions but fails to remit any portion of the contributions to the fund.

    Be Proactive And Partner With A PEO Today!

    As the board is still working on the implementation of this program, employers have time to figure out a game plan for their business. When partnering with a PEO like GMS, our experts will keep you up to date on these changes and assist in the process of enrolling your employees into this program. Offering a retirement plan is more important than ever to retain quality employees. However, at GMS, we know how challenging it can be to decide which plan is best for you and your employees. Are you looking for proactive ways to ensure your business’ success? Contact us today to learn more! 

  • No matter the size of your company, a 401(k) can play a pivotal part in a competitive benefits package. Only 48% of businesses offer some form of retirement savings plan for their employees, which makes starting a 401(k) plan all the more enticing for an enterprising business owner.

    Of course, it’s not always clear how to set up a 401(k) or profit sharing plan for your small business. Offering a retirement saving and investing plan takes a few steps, but the results can have a major impact on both your employees and your company. It’s time to break down what it takes to set up the right 401(k) for your company.

    Why Should My Small Business Offer a 401(k) Plan?

    Before you set up a 401(k) for your small business, it’s important to know why it makes sense for your company. There are several key reasons to offer this sought-after benefit.

    Attract and retain talent

    Arguably the most obvious benefit of offering a 401(k) plan is that it makes your business more competitive in the hiring market. Charles Schwab reports that 88% of job seekers named a 401(k) plan as a “must have” benefit when considering a position. That desire for a retirement plan not only makes your business more attractive as a landing spot, but also adds another way to keep your current employees satisfied.

    Improve your employees’ morale

    A 401(k) can stand as more than just a financial benefit. The act of giving your employees a retirement savings plan serves as a symbol that you value their future with your company—and beyond. 73% of Americans named their finances as the top cause of stress in their lives. By offering a 401(k), you can show employees that you care for their quality of life, which can help make them more productive and appreciative.

    Tax-deductible perks

    Another potential advantage of offering a 401(k) plan is that they can help out during tax season. First off, the IRS states that any “elective deferrals and investment gains are not currently taxed,” which means that you and your employees can enjoy tax deferral until those funds are distributed. Employers can also deduct any matching contributions up to the annual limit on their federal income tax return.

    The Four Steps for Setting up a 401(k) for a Small Business

    Once you’re ready to establish a 401(k) plan, there are some initial actions you’ll need to take for your business. This four-part process will help you go from identifying the right type of plan all the way through executing your new 401(k).

    Step One: Choose A Plan That’s Right For You

    Once you decide to offer a 401(k), it’s time to determine which type of plan is right for your business. There are many types of plan designs that offer different contribution features or advantages. This amount of flexibility allows you to determine how contributions work, create eligibility requirements and vesting schedules, and decide on whether or not to contribute to these plans. These plans include:

    • Traditional 401(k)
    • Safe harbor profit sharing 401(k)
    • Simple 401(k)
    • Roth 401(k)

    Traditional 401(k)

    The traditional 401(k) plans are arguably the most flexible option available. The plans give employers a lot of freedom in terms of profit sharing options, vesting schedules, and more. Through a traditional 401(k), employers can:

    • Contribute directly to all participants’ plans.
    • Match employees’ deferral amounts (or a portion of the deferrals).
    • Provide both contributions and matches.
    • Offer none of the above.

    Any contributions employers make can be subject to a vesting schedule, giving employers added flexibility. These schedules determine how long an employee must work for your company in order to keep part or all of your company’s contribution.

    Another key part of traditional 401(k) plans is that they are subject to non-discrimination tests with the IRS. These tests are designed to prevent businesses from favoring certain employees over others. Every year, the IRS will test traditional plans to see if the deferral percentage and actual contribution percentage don’t favor highly compensated employees key employees such as an owner. As such, you’ll need to meet these testing requirements to prevent your 401(k) from failing IRS guidelines.

    Safe harbor 401(k)

    Safe harbor plans are similar in nature to traditional plans, with the biggest difference being that safe harbor plans are not subject to the IRS annual contribution testing. In exchange for eliminating these non-discrimination tests, employers are required to make contributions to employees’ plans. In addition, many safe harbor 401(k) plans require these mandatory contributions to fully vest when they’re made.

    SIMPLE 401(k)

    If your business has fewer than 100 employees, you can also opt to offer what’s called a SIMPLE 401(k). This type of plan is also exempt from nondiscrimination testing, but does limit some of the flexibility of other plan types. For example, your business cannot offer any other types of plans and all contributions must be fully vested. SIMPLE plans also require employees to make one of the following types of contributions.

    • A matching contribution up to 3% of each employee’s pay.
    • A non-elective contribution of 2% of each eligible employee’s pay.

    Roth 401(k)

    Another option available to business owners when setting up a 401(k) is a Roth account. Roth accounts function much in the same way as a regular 401(k), except that all contributions are taxed before they’re deposited. The main advantage of this type of plan is that account owners don’t need to pay any taxes on withdrawals, including all of the investment earnings.

    Step Two: Find the right team for your 401(k) plan

    When learning how to set up 401(k) for a small business, an essential requirement is partnering with the right providers for your business. There are many different aspects of a 401(k) plan that makes it nearly impossible for business owners to do everything by themselves. That’s why these plans can involve a variety of partners, including:

    • Recordkeepers in charge of processing withdrawals and tracking contributions, earnings, losses, plan investments, expenses, and benefit distributions.
    • Advisors who help you select and maintain plan investments and potentially oversee the money management of the plan.
    • Plan administrators who handle document preparation, transaction approval, compliance filing, and other behind-the-scenes tasks.
    • Payroll providers who tie your payroll process to plan contributions and paycheck deductions.

    With the right team, business owners can successfully implement a 401(k) plan. However, that doesn’t necessarily mean that multiple providers for each role. Small businesses can choose to work with multiple vendors or find a partner like a Professional Employer Organization that can oversee and manage most, if not all, of the setup and administration for your plan.

    Step Three: Start Your New 401(k) Plan

    Now that you have the plan type and partnerships in place, it’s time to make your 401(k) official. The IRS requires businesses to take some basic actions to officially establish and run a 401(k) plan.

    Create a plan document

    Every 401(k) plan needs to start with a written document. According to the IRS, this document should serve as “the foundation for day-to-day plan operations.” In short, the document should lay out the various rights, benefits, and features of your plan. These details include:

    • When your employees are eligible for the plan.
    • A breakdown of profit sharing and employer matching (if applicable).
    • Guidelines on vesting schedules.
    • The process for handling distribution.
    • Relevant contact information for providers and internal company resources.

    Set up a trust

    The next basic action involves having any plan assets held in a trust. This step ensures that these assets only benefit the participants of the plan. Your business must assign at least one trustee to the plan. This individual or group is tasked with handling plan activities such as contributions, distributions, and plan investments.

    While this step may seem simple, it’s critical to have the right trustee in place. Trustees’ decisions will have a direct impact on your plan’s financial health, so you’ll want a person or people in place who you can trust with the financial integrity of the plan.

    Record maintenance

    Businesses are also required to set up an accurate recordkeeping system for their plans. This system should track and properly attribute several key details, including:

    • Contributions
    • Earnings and losses
    • Plan investments
    • Expenses
    • Benefit distributions

    Another reason recordkeeping systems are important is that they can help your business stay compliant with the Federal government. Every year, businesses must prepare and file an annual return/report for their 401(k) plans. The recordkeeping system makes it easier for you and your team to prepare these reports.

    Inform participants

    The final action for setting up your small business’ 401(k) plan is to notify eligible employees about your plan. This information should include key details about your plan’s benefits and requirements. These efforts should include providing employees with a summary plan description (SPD) that shares key information and discloses fees. You can also opt to provide additional information, such as education about the advantages of a 401(k) plan and employees can get the most value out of them.

    Step Four: Ongoing Maintenance

    Setting up a 401(k) for a small business is a big accomplishment, but it’s not the end of the process. An ongoing 401(k) plan requires additional work to keep it successful and compliant. These responsibilities include:

    • Regular plan maintenance
    • Ongoing nondiscrimination testing
    • Government filings
    • Employee assistance

    Find the Right Partner to Help You Set Up and Maintain Your Small Business’ 401(k)

    Let’s face it – setting up and maintaining a 401(k) plan can be an overwhelming, time-consuming process. That’s why GMS partners with small businesses to offer an attractive 401(k) or profit sharing retirement plan without the added time and hassle. GMS not only saves you time by managing your setup and ongoing maintenance, but also reduces plan costs by leveraging the group buying power as a PEO.

    Ready to set up a fully customizable retirement savings plan for your business? Contact GMS today to talk to our experts about how we can support the financial health of your employees through our large-scale 401(k) plan.

    Already a GMS client? Sign up for a 401(k) through GMS now through Aug. 31 and we’ll waive the admin fee for the rest of 2021-22! Reach out to your account manager or Tom Smith (TSmith@groupmgmt.com) to set up an appointment.

  • Retirement plans are one of the most valuable employee benefits offered by organizations today. According to the Society for Human Resource Management (SHRM), the vast majority of workers say having a retirement plan is critical to their overall job satisfaction. Perhaps that’s why this benefit is such a deal breaker for job hunters and one of the main reasons why so many workers stay with their current employers. 

    It can be challenging for small businesses, however, to manage the administrative costs and compliance requirements associated with offering retirement savings plans. Only 53 percent of small-to-mid-sized businesses offer a retirement plan, with approximately 38 million private-sector employees without access to one through their employers.

    The good news is that may be about to change. In July 2019, the Department of Labor (DOL) clarified the definition of “employer” within the Employee Retirement Income Security Act (ERISA) in sponsoring a multiple employer contribution pension plan. In establishing the ‘final rule’, which goes into effect Sept. 30, 2019, the DOL has made it easier and more cost-effective for small businesses to offer retirement plans to employees through Association Retirement Plans (ARPs).

     Retirement savings.

    What is an Association Retirement Plan?

    Per the final rule, ARPs allow small and mid-size businesses to band together to offer joint 401(k) retirement plans. By using the purchasing power of the combined businesses, they can bargain for lower administrative and investment fees that would otherwise prevent them from offering retirement savings plans.

    “Many small businesses would like to offer retirement benefits for their employees but are discouraged by the cost and complexity of running their own plans,” Acting Secretary of Labor Patrick Pizzella, said in a statement. “Association Retirement Plans offer valuable retirement security to small businesses’ employees through their retirement years.”

    According to the DOL’s final rule, ARPs can be offered by associations of employers in a city, county, state, multi-state metropolitan area, or nationwide industry. ARPs can also be sponsored through a Professional Employer Organization (PEO), which is a company that provides comprehensive HR services for businesses. While many PEOs have been sponsoring retirement plans for some time, this final rule provides the validation needed to continue doing so.

    What it Means for Small Business Owners

    Prior to this rule, such retirement plans were limited to employers with an affiliation or connection, such as a shared owner or being members of an industry trade group. However, these changes now mean that, for example, a landscaping company and a marketing agency located in the same area could create a joint retirement plan.

    With a more cost-effective solution, small business owners can reap the benefits of offering retirement plans, including:

    • Attracting quality talent.
    • Improving employee satisfaction.
    • Reducing new employee training.
    • Retaining high performers.

    Additionally, businesses can also receive tax credits from the IRS for starting a retirement plan. 

    Retirement Plans Assistance

    Offering retirement plans is important to attracting and retaining quality employees, but it’s a benefit with a lot of complexity and risk. Need assistance? A PEO like Group Management Services (GMS) can help cut costs, reduce stress, and save time when it comes to establishing retirement plans. We can help you set up fully customizable plans to easily establish eligibility requirements, vesting, profit-sharing contributions, and more.

    In addition, GMS offers comprehensive services, including human resources, payroll, risk management, employee benefits, and more. Contact GMS today to request a consultation.

  • Retirement plans can be a great benefit for small business owners looking to attract and retain employees. But between IRAs and 401(k)s, it can be challenging to decide which is the best plan suited for your organizational needs. For greater ease, some employers might prefer the SIMPLE IRA. For flexibility, though, the variety of choices available in a 401(k) can make this retirement plan a more attractive option. 

    Choosing a retirement plan is often one of the most important financial decisions a business owner can make. To help with your decision, we explained the differences between a SIMPLE IRA and a 401(k) as well as the pros and cons of each retirement savings plan.

     Retirement savings plan.

    What is a SIMPLE IRA?

    A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRA is a tax-deferred retirement savings account that can be established by employers, as well as self-employed individuals. As the name implies, many employers prefer this plan for its simplicity in that it’s quick to set up and ongoing maintenance is straightforward and inexpensive from an administrative standpoint.

    The Difference between a SIMPLE IRA and a Traditional IRA

    While SIMPLE IRAs and Traditional IRAs are similar, SIMPLE IRAs are aimed more toward small business owners and self-employed individuals. With a SIMPLE IRA, employers must match part of their employees’ contribution. Employers have two options for matching according to Motley Fool: They can either match contributions up to 3% of their employees’ compensation, or contribute a fixed rate of 2% of compensation regardless of employee participation in the plan. The contribution limits are also different. The amount an employee contributes from their salary to a SIMPLE IRA cannot exceed $13,500 in 2020 and 2021. Conversely, for a Traditional IRA, the total contribution limit can’t be more than $6,000 in 2020 and 2021 ($7,000 if you’re age 50 or older).

    The Difference between a SIMPLE IRA and a SIMPLE 401(k)

     

    A SIMPLE 401(k) plan is a cross between a SIMPLE IRA and a traditional 401(k) plan. The same eligibility rules that apply to a SIMPLE IRA apply to a SIMPLE 401(k). One key difference is the employer contribution limits. All employer contributions to a SIMPLE 401(k) are subject to a compensation cap ($290,000 for 2021); with a SIMPLE IRA, only non-elective employer contributions are subject to a compensation cap.

    Eligibility

    To qualify for a SIMPLE IRA, employers can have no more than 100 employees who have received at least $5,000 in compensation from the employer for the previous year. There is also no age limit with a SIMPLE IRA, making it available to all employees within the company. By choosing a SIMPLE IRA, employers are not allowed to maintain any other plan. 

    Contributions

    Employer contributions are mandatory with a SIMPLE IRA and are deductible on your business tax return. Regardless of whether an employee contributes, employers must either match up to 3 percent of an employee’s pay or match a contribution equal to 2 percent of an employee’s compensation. For two out of every five years, an employer who elects to make matching contributions has the option to reduce their contribution amount to one that is between 1 and 2.99 percent. With a SIMPLE IRA, all contributions vest immediately.

    As with any retirement savings plan, there are some limits to how much can be contributed to a SIMPLE IRA. For 2020, the annual contribution limit is set at $13,500 (up $500 from 2019) for employees. Workers that are 50 years in age or older can contribute $3,000 more, for an annual total of $16,500. Meanwhile, there is no limit on employer matching contributions, with one exception. Employers using the 2 percent contribution based compensation model can only match their contribution on up to $280,000 salary.

    Administrative responsibilities and fees

    As previously alluded to, there are minimal administrative requirements associated with SIMPLE IRAs. There are no annual tax filing requirements, either – business owners just need to be sure to send annual plan details to employees. Another advantage of SIMPLE IRAs is the low cost of setup and maintenance.

    What is a 401(k)?

    A 401(k) is a defined contribution retirement plan that comes with a lot of flexibility for employers who would like to offer it as a benefit to employees. While this type of retirement savings plan can be more complex to establish and maintain, being able to choose how you want to contribute to employee accounts as well as having the option of a Roth 401(k) can sway employers to select this plan.

    Eligibility

    Any company with one or more employees is eligible to offer a 401(k). However, 401(k)s are limited to employees at least 21 years old who worked at least 1,000 hours in the previous year. 

    Contributions

    Under a 401(k), employees have the option to set aside a portion of their income and invest it in a qualifying retirement account. This money is tax-deferred, meaning that the employee doesn’t pay federal income taxes on their contributions.

    Perhaps one of the biggest advantages of offering a 401(k) is that employer contributions aren’t mandatory. Rather, employers have the option to match none, some, or all of their employees’ 401(k) contributions. Usually, business owners will set limits on how much they’ll match. For example, you might match employee contributions up to 6 percent of an employee’s salary, and only have your contributions fully vest after two years. 

    Employer contributions are deductible up to IRS limits. As of 2020, combined contributions of employee and employer are limited to less than 100 percent of compensation, or $56,000. For workers aged 50 and older, that limit is raised to $62,000. Should an employer chose not to contribute, employee contributions are limited to $19,000, or $25,000 for those aged 50 and older.

    Additional provisions

    In addition to the traditional 401(k) as mentioned above, there are additional provisions that can be made, such as a Roth option or profit-sharing.

    Roth 401(k)

    The option of a Roth 401(k) can be a major deciding factor in selecting this retirement plan. A Roth option for your 401(k) plan allows you and your employees to contribute post-tax earnings toward retirement and face no additional taxes on those savings or investment earnings when the money is withdrawn at retirement. 

    Having the Roth option can be a cost-effective way to make your retirement savings plan more attractive because you and other highly-compensated employees won’t be subject to an income cap. Furthermore, contributions to the account are taxed up-front, rather than at the time of withdrawal. While certainly a plus, the additional tasks associated with the administration and taxation of a Roth 401(k) can be burdensome on a small business. 

    Profit Sharing

    Profit-sharing is another option that can be added to a 401(k) plan with a simple amendment. Profit-sharing allows business owners to contribute pre-tax dollars to employee retirement accounts based on how well their business did in the year. For profit-sharing 401(k) plans, the annual contribution limit is $56,000 per employee (or 100 percent of their salary, if it’s lower). 

    Profit-sharing plans can serve as a great motivation tactic for employees to work hard toward meeting your goals. As with all other types of 401(k)s, implementing a profit-sharing 401(k) plan can also allow small business owners to benefit from lower tax liability, controlled contributions, and improved talent acquisition and retention.

    Administrative responsibilities and fees

    With more flexibility comes greater administrative duties and plan fees associated with 401(k)s. For one, employers that offer 401(k)s are subject to a compliance audit every year to ensure that plans don’t favor highly-compensated employees over those who are paid less. In addition, employers are subject to higher setup and maintenance costs. Generally, plan fees tend to expensive, even more so for small businesses.

    SIMPLE IRA vs 401(k): How to Decide

    As described above, there are many pros and cons to each retirement plan. To help decide which plan is best for your company, ask yourself the following questions:

    Why are you setting up a retirement plan?

    There are many benefits to setting up a retirement plan, which you’re likely considering. For instance, retirement benefits are listed among the most important employee benefits, according to Monster’s 2019 State of the Candidate survey. Beyond employee acquisition and retention, you may be trying to save for your own retirement as a small business owner. Contribution limits may be a factor here, especially for profitable owners who may prefer the 401(k) for the higher contribution limit.

    Will you need to adjust employer contributions?

    In an uncertain economy, mandatory employer contributions can be both a detriment and a benefit to small business owners. While mandatory contributions can certainly help attract employees, maintaining contributions could present some challenges, should your business fall on hard times. That’s where 401(k)s provide an advantage to employers who may need to make adjustments to their contributions in the future. With a 401(k), you would also have the option to set vesting terms, which allows you to require employees to remain employed by you for a set time before taking ownership of your contributions to their accounts.

    Retirement Planning for Small Business Owners

    Offering retirement plans is important to attracting and retaining quality employees, but is a benefit that can come with a lot of complexity and risk. That’s where a professional employer organization (PEO) like Group Management Services (GMS) can help. From cutting costs to reducing stress to saving valuable time, GMS can take on the administrative burdens associated with retirement plans, in addition to other employee benefits and HR responsibilities like payroll, human resources, and risk management, to allow you to focus on growing your business. 

    Contact GMS today to see how we can help make retirement plans simpler for your small business.