Since the more participants you have, the better your plan works, we want to go over with you some ways in which you — or your financial advisor — can encourage and successfully convince employees to participate in your 401(k) plan.

Why Should Employers Care About Participation Levels?

At the most basic level, the best reason to care about whether your employees participate in the 401(k) plan you sponsor is because you want them to make good, sound financial decisions for themselves, and you know that saving for the future is a critical aspect of this decision.

However, even at a small business, you may very well not be aware of some of your employees’ personal hardships. They may be struggling under a mountain of debt from medical bills or college tuition. They may need every dollar to help care for elderly relatives or disabled children. They or a family member may be fighting a drug or gambling addiction. All these scenarios can result in an employee deciding to forego saving for their future.

But even if you think it’s not your place to get involved in your workers’ financial decisions, there’s another important reason for upping employee participation in your 401(k) plan — the more participants you have, the more you and other highly compensated employees can contribute to your own nest egg, due to federal regulations regarding the ratio of contributions from each group.

Why Aren’t Employees Contributing?

Reasons workers who aren’t contributing to a 401(k) give for not doing so besides wrestling with debt include giving priority to building an emergency fund (which is more accessible than funds in a retirement account), not having enough income to sufficiently cover daily expenses and preferring to delay 401(k) contributions in favor of funneling income toward purchases such as cars, vacations, electronics, etc.

And although employees often don’t mention it, another big reason they don’t contribute to an available 401(k) plan is that they don’t understand the benefits, which brings us to our first strategy for boosting 401(k) participation: education.

1.       Educate Employees on the Benefits of Contributing to a 401(k)

Many companies provide little in the way of education around investments and 401(k) plans, and some provide none. If you are a small-business owner or a financial advisor working for a small-business owner, you may be in the latter category. We get it — your priority is running and growing your business, not holding your employees’ hands. But if you’re reading this, you have likely already decided that sponsoring a 401(k) plan makes good business sense, so you might as well take the next step and commit to putting some effort into boosting participation in the plan you took the time to choose.

You could email, snail mail or hand out some generic investment advice to your employees, and this may be helpful for boosting participation, but if it’s not, we have some insight into why.

a.       People tend not to read unsolicited mail, even (or especially) from their employer.

b.       The text may be too complicated or technical for some of your employees to understand.

c.       They may want to read it and intend to read it, but never actually read it.

Studies show the best way to get more employees to participate in your 401(k) plan is to hold individual meetings with them. Yes, that takes time, and time is money, but if you do your research and get a handle on why this problem may exist at your company in your area of the country, you can craft a presentation that hits on the major pain points and use it over and over for each employee, leaving a couple minutes at the end of each meeting for questions.

Even if you aren’t that concerned with your personal contribution level and that of your highly compensated employees, you will still benefit as an employer who is invested in their workforce’s 401(k). With an optimal vesting schedule, employees will be more loyal to your company, and they will spend less work time worrying about their financial situation.

If for some reason individual meetings are truly not possible, consider making a video (or having your financial advisor do it) that hits on the major points you want to make, and show it at a mandatory meeting. While some employees may zone out, this method is still better than sending them mail they may never open.

2.       Make Participation Automatic

Today, many companies are choosing to make participation in the company 401(k) automatic. Whenever a new employee is onboarded, they are automatically enrolled in the 401(k) plan. Since participation in a 401(k) plan cannot be made mandatory, employees are allowed to opt out. But most won’t. That’s because one major reason employees don’t join their company-sponsored 401(k) plan is because they never get around to it. Procrastination is real, and it costs people money. 

Imagine if, instead of taxes being taken weekly out of workers’ paychecks, that they were instead tasked with setting aside the money and paying it themselves each year. Mandatory enrollment results in higher enrollment.

Plus, a tax credit is available to companies that start a plan with an auto-enrollment feature. This makes it a win for employees and employers.

3.       Offer an Employer Match

A matching employer contribution can make a big difference in the level of employee participation in your 401(k) plan. When an employer matches employee contributions, the employee feels more as though the employer is invested in their financial well-being. The employee feels more valued and the employer-employee relationship is strengthened.

Additionally, since so many employers offer matching contributions, if you don’t, your employees may be saving their money to invest at their next job — where the employer matches employee contributions.

Start Planning Your Strategy Today

Whether you are a small-business owner or a financial advisor, encouraging workers to invest in their retirement is good not just for them and you, but for the country as a whole. Financially secure people are happier, more productive and sometimes even healthier. They’re in a better position to help those who are struggling, so everyone wins.

If you’re thinking of launching a 401(k) program at your small business, 401GO is the provider to work with. You can get your plan up and running in as little as 15 minutes, at minimal cost to you. If you already sponsor a 401(k) plan, try implementing our strategies to boost participation, and see how your efforts can improve life for everyone at your company.

The post Strategies for Boosting Employee Participation in 401(k) Plans appeared first on Fast and Affordable 401k for growing businesses.

401(k) Audit Requirements

The main requirement laid out by ERISA (the Employee Retirement Security Act of 1974) that determines whether your small business needs a 401(k) audit is how many employees you have who are eligible to participate in your plan.

According to the Small Business Administration, a company must have fewer than 500 employees to qualify as a small business. You may not realize it, but 99.9% of all businesses in the U.S. — 33.2 million — are small businesses. Amazon and Walmart and Apple may get a lot of press, but they and others like them make up a tiny fraction of the total number of businesses.

Of the approximate 157 million workers in the U.S., just a little under half work for small businesses. That’s about 78 million people who may not have access to a 401(k) without the type of service that 401GO provides.

At what point will the number of employees eligible to participate in your plan trigger the need for an audit? Your small business only needs to be concerned about scheduling 401(k) audits if it has 100 or more employees eligible to participate — 120 if you have not previously qualified for an audit.

When calculating this number, it’s critical for every small business owner to understand that it is not 100 plan participants, but 100 employees eligible to participate. If you have 70 plan participants and 30 others who are eligible to join but opt out, you must still conduct the audit. In calculating this number, you may even need to include recently retired employees and employees who were terminated at a certain point in the calendar year.

Generally speaking, for an employee to be eligible to participate in the plan, they must be 21 years old and have completed a minimum number of days in service at your company.

While many companies add employees into their 401(k) plan on the first of the year, this may be done at other times during the year as well. To calculate your numbers correctly when determining whether your company needs an audit, you must count only employees who are eligible to join the plan on the first of the year. This may be an important distinction for you company to make.

What Is Involved in a 401(k) Audit?

Outside of the business world, audits are often associated with taxes and are generally considered unpleasant and stressful. But at many companies, audits are necessary to keep businesses on track. Many businesses perform audits of their own volition as a means to ensure their company is running the way they want it to. It helps not only to gain assurance that proper processes are in place and rules are being followed, but also to discover certain kinds of problems before they get out of control, such as fraud, embezzlement, mismanagement or other crimes involving assets.

When considering who should perform your audit, it’s important to remember that all 401(k) audits must be completed by an independent third party that has no ties to your firm — a certified public accountant or otherwise qualified auditor who is well-versed in laws pertaining to ERISA, the IRS, the Department of Labor and other applicable areas.

When participation at your company’s 401(k) plan reaches a point at which an audit is required, you must complete it within seven months of the end of the plan’s calendar year. If you are having trouble completing the audit in the time allowed, you may apply for an extension. The maximum time allowed for an extension is two and a half months.

Roughly speaking, however, the auditor you choose should be able to complete the audit in a few months or less, depending on the size of your company and the scope of the project. This time period can be greatly influenced by the diligence and strength of your recordkeeping and your ability to quickly and fully produce the documents needed to perform the audit.

Your auditor will, among other things, check to ensure your company is in compliance with laws pertaining to administration and management of a 401(k) plan, such as proper payments of distributions and rollovers and timely processing of employee contributions. Additionally, your auditor will check to ensure that your financial reports are in order and have been filed correctly and on time.

If any errors are discovered during the audit, your company then has a chance to correct them before serious consequences result.

Keep Your Company’s Plan Running Smoothly

While a 401(k) audit takes time and costs money, it is a necessary part of owning and operating a small business that provides benefits such as a vehicle for investing in retirement. If you aren’t sure whether your company is required to perform a 401(k) audit this year, consult a professional accountant. Failing to perform a required audit can result in fines or penalties for your company.

Here at 401GO, we understand how important it is for small-business owners and their employees to have access to a 401(k) plan that works for them. For help getting your small business started with a 401(k) plan or to learn more, contact us today.

The post Does Your Company Need to Do a 401(k) Audit? appeared first on Fast and Affordable 401k for growing businesses.