In 1974, the Employee Retirement Income Security Act (ERISA) created the modern 401(k) plan. Despite its many benefits for employees, this plan remained underutilized for many years because many employers didn’t know how to set up a 401(k) for employees. Managing a retirement plan, handling payroll, and staying on top of legal compliance was a struggle for small business owners. 

Thanks to technological change, figuring out how to offer 401(k) to employees is easier than ever. In addition to better technology, there is new legislation that makes 401(k) contributions and administration costs into tax credits for employers. To learn more about how to set up a 401(k), read on.

How Secure 2.0 Saves Employers Money on Retirement Costs 

Secure 2.0 was originally passed in 2022. It is unique in the way it offers 401(k) benefits for employers and employees. Instead of requiring employers to shoulder the entire costs of setting up a 401(k) retirement account, Secure 2.0 incentivized retirement savings accounts for employers and employees. 

The Fees Employers Pay for 401(k) Setup and Administration

To start with, Secure 2.0 changes the fees employers pay for 401(k) plan setup and administration. Instead of letting small business owners shoulder this burden, Secure 2.0 provides up to $5,000 in 401(k) tax credits for employers, which could equal the entire cost of setting up your new 401(k) plan. This doesn’t just include the direct costs of administering a plan, like your plan’s startup fee. It also includes any additional costs you incurred while learning how to set up a 401(k) for your workers.

Tax Credits for 401(k) Contributions 

What is 401(k) matching under Secure 2.0? More importantly, how can it help your team members? 

If you’re trying to figure out how to offer a 401(k) to employees, it helps to know what type of matching benefits you can provide. Thanks to Secure 2.0, you can get a tax credit for providing matching contributions to your employees. 

A matching contribution is when you agree to match the amount your employee saves in their plan. Smart companies adopt this type of plan to attract high-quality workers and to save money on compensation. When you provide part of the worker’s compensation through matching contributions, you get to avoid paying FICA taxes. 

On top of FICA savings, you can get a $1,000 credit from the government. During the first two years of your 401(k) retirement account, you can get 100% back from your contributions for up to $1,000. In the third year, you can get up to 75% of your contributions back. After dropping to a level of 50% in the fourth year of your contributions, the tax credit drops to 25% in the fifth year. 

Throughout all five years, the maximum dollar amount you can get from the credit is $1,000. Additionally, there are some additional limitations on employees who make more than six figures.

How to Set up a 401(k) for Employees 

If you are trying to figure out how to offer 401(k) to employees, the first step is to check with your payroll provider. There are distinct advantages to working through a payroll provider like Asure that offers made-for-small-business 401(k) plans that integrate seamlessly with payroll. With the right 401(k) provider, you can enjoy some of the following advantages. 

Compliance: When your payroll provider handles 401(k) benefits for employees, you don’t have to worry about any legal requirements or documentation.

Payroll Integration: The last thing you want to do is deal with multiple software platforms and integrations. When your payroll and 401(k) are run by the same company, you don’t have to worry about navigating different systems.

Cost: As you learn how to set up a 401(k) for employees, it is important to look at the costs. Some of the fees employers pay for 401(k) plans can be expensive, so it is important to find a provider that will keep your costs down.

Tax Support: You can save money on your 401(k) contributions, administration, and setup costs. As you look for a 401(k) provider, you should ask them about the type of tax and compliance support they provide. 

Streamline Set Up with the Right 401(k) Provider

There are certain steps required to set up a plan. When you partner with an experienced provider, they will handle the key steps in the process for you, so you can focus on growing your business. 

1. Adopt a Written Plan Document 

According to the United States Department of Labor, there are four essential steps involved in learning how to set up a 401(k) for your workers. First, you must adopt a written plan to guide your 401(k)’s operations. If you hire a company to manage your 401(k) benefits for employees, they should create this written plan for you.

2. Create a Trust

Next, a trust must be selected for the plan’s assets. A trust is necessary because it holds the plan assets separate in compliance with federal regulations.  When you partner with a 401(k) provider, they will identify the trustee who will be responsible for handling contributions, distributions, and other tasks on your behalf.

3. Use a Recordkeeping System 

Partnering with a provider who delivers access to your 401(k) information via an intuitive interface will enable you to easily fulfill your legal obligations with regards to records of your company’s 401(k) retirement accounts. Your recordkeeping system will help you track your plan’s losses, gains, contributions, and deductions. If you work with a 401(k) plan provider, they will handle the recordkeeping process.

4. Share Plan Information to Your Employees

The next step is giving all of your employees information about how to set up a 401(k) with your company. Let your current and prospective employees know about your retirement plan benefits, which are known to attract top talent and drive retention. 


How Does a 401(k) Make Money? 

How does a 401(k) make money? More importantly, how do your employees determine what type of investments they want to use? 

Ultimately, a 401(k) makes money the same way that other investment vehicles do. If you place your 401(k) contributions in stocks, you will earn dividends over time. As the stock value increases, your 401(k) plan’s value will also increase. 

Most 401(k) plans are invested in mutual funds or target-date retirement funds. Both of these options involve a basket of investment options, so you aren’t putting your money into a single stock or bond. With target-date retirement funds, your 401(k) will also automatically recalibrate its risk level as you get closer to retirement age. 

Discover More Information on How to Offer 401(k) to Employees 

By learning about how to set up a 401(k) for employees, you can help your workers save money for retirement. At the same time, your small business can also enjoy a range of tax benefits. Additionally, many job applicants expect their future employer to offer 401(k) plans, so this is an important qualification if you want to stay competitive in the job market. 

If your company needs help offering 401(k) plans, you’re not alone. Connect with one of our small business payroll & HR experts today to get the support you need to focus on growth.


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