If your business has many employees, you wish to provide an attractive employee benefit, and you want to retain control over some aspects of a retirement plan, offering a 401(k) plan may be an attractive alternative.

A 401(k) is a company sponsored profit-sharing plan that allows employees to defer a portion of their wages into investment options of their choice. Employers have the flexibility to match a percentage of the contributions made by their employees.

  • In considering a 401(k) plan for your business, you should be aware of these guidelines, rules and features:
  • Any employer with one or more employees can establish a 401(k) plan. However, usually this type of plan becomes economically feasible when a company has at least 25 employees.
  • These plans allow for employees to contribute pre-tax dollars for their own benefit, bringing them into the process of planning for their own retirement.
  • The contribution limits are larger than those for most other types of plans. For 2017, employees can defer up to $18,000 into their account.
  • The 2001 tax law also created a “catch-up” contribution provision for participants ages 50 and older. Under this provision, in 2017 an eligible participant can contribute an additional $6,000.
  • The employer can attach a vesting schedule to any company contributions. This provides a strong motivation for employees to remain with your company.
  • The company can have control over some level of their contributions. Usually, the plan document provides a certain level of contribution matching of employee deferrals, but can allow the company to make a discretionary contribution, usually based on financial results.
  • The 401(k) plan must be made available to all employees at least 21 years of age who worked at least 1,000 hours in the previous year.
  • Most 401(k) plans provide a great deal of investment flexibility. Participants choose where to invest their money among many alternatives. Usually, there are a number of mutual funds and often an option of company stock (if the company is publicly held).
  • There are annual filings that must be made with the IRS and special testing to ensure the plan does not discriminate in favor of highly compensated employees.
  • The key parties needed for establishing and administering a 401(k) plan are an administrator and an investment manager. Many investment managers, including banks, mutual fund companies and some investment advisors, offer special bundled programs that include administrative services as well as investment management options.

This news is provided as a service to you by Marlin Business Services Corp., a nationwide leader in commercial lending solutions for the U.S. small business sector. Marlin’s equipment financing and loan programs are available directly and through third-party vendor programs, including manufacturers, distributors, independent dealers and brokers, to deliver financing and working capital that help build your success.