The Basic Points in Establishing a 401k Plan

When you are planning on opening a 401k plan, there are certain points you need to think about and work through. One of these would be whether you want to take care of setting up the plan yourself, or whether you want to talk to a retirement professional to help you get the job done. Here are the four action points for you:

First you need to have a written plan. This will assist you in your daily operations. Before writing the plan document, you need to decide what type of 401k plan is best for you. These are your options:

• A traditional 401k plan offers you the maximum flexibility of all the options. An employer has the option to match the participants contributions on this plan, and the contributions made by participants are from pre-taxed income.
• A safe-harbour 401k plan is comparable to the above; however in this case employer contributions should be fully vested when paid. Tax rules for this plan are less complex than those for the traditional plan
• The simple 401k plan was produced for owners of small businesses, to enable them to have a retirement plan that is cost efficient. The simple plan is for small businesses employing 100 individuals or less.

Your second step is to make sure that the assets of the 401k plan are held in trust, thus benefiting only the participants and not the business profits.

You must also develop a good record keeping system, to keep track of all payments being made in and out of the plan, investments chosen, earnings made and expenses paid from the plan.

Finally you should also provide your employees with adequate information regarding the benefits they have and the requirements of the plan. A summary plan description is a very good way of providing all the necessary information to the participants.

Reference: http://www.irs.gov/retirement/article/0,,id=119612,00.html