Excerpted from Arkansas Employment Law Letter written by attorneys at the law firm of Jack Nelson Jones Fink Jiles & Gregory, P.A.
Q. How do I go about starting a 401(k) plan for my employees, and what are some of the general requirements?
A. Choosing to offer a 401(k) retirement savings plan for your employees is a great way to help them plan for the future. It also may help you attract and retain qualified employees. In addition to offering great tax advantages to participating employees, a 401(k) plan may provide tax advantages to your business.
The first step toward implementing a 401(k) plan is to determine which type of 401(k) best suits your business: the traditional 401(k), the safe-harbor 401(k), or the SIMPLE 401(k). Each type of plan comes with its own set of advantages and requirements. Because determining which plan will work best for your business can be a complex decision, you should seek the assistance of an experienced accountant or attorney.
No matter which type of 401(k) you decide on, there are a number of rules you must follow and requirements you must meet. We'll highlight some of the basic requirements, but to ensure that your plan is implemented and operated smoothly, consult with an attorney experienced in handling retirement savings plans.
One of the most important steps in starting a 401(k) is to adopt a written plan document, which will serve as the foundation for day-to-day plan operations. You'll be bound by the terms of this document, so be sure that it's drafted carefully. Also, you must arrange for the plan's assets to be held in trust. Choosing a trustee to handle contributions, investments, and distributions is very important to ensure that assets are used solely to benefit participants and their beneficiaries. If you plan to set up your plan through insurance contracts, however, they don't need to be held in trust.
Next, ensure that you have an accurate recordkeeping system in place to track participants' accounts. That also will help you prepare reports that must be filed with the federal government. You must notify all employees who are eligible to participate in the plan about its benefits and requirements. Employees who may be excluded from the plan include workers under the age of 21, anyone who has been employed for less than a year, and employees covered by a collective bargaining agreement that doesn't provide for participation in the plan.
You'll have to decide how much, if anything, your business will contribute to participants' accounts. Businesses that implement a 401(k) plan must comply with certain nondiscrimination rules that ensure the amount of contributions made on behalf of different levels of employees is proportional. In addition, you must decide whether employees will be able to direct the investment of their accounts and, if so, what investment options will be made available to them.
If you have a question, please submit it to "Ask the Editor," c/o Gary Jiles, Jack Nelson Jones Fink Jiles & Gregory, P.A., 425 West Capitol Avenue, Suite 3400, Little Rock, AR 72201; phone (501) 375-1122; fax (501) 375-1027; e-mail gjiles@jacknelsonjones.com.
Copyright 2008 M. Lee Smith Publishers LLC. ARKANSAS EMPLOYMENT LAW LETTER. ARKANSAS EMPLOYMENT LAW LETTER should not be construed as legal advice or a legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only. Anyone needing specific legal advice should consult an attorney. The State Bar of Arkansas does not certify specialists in labor law, and we do not claim certification in any listed area. For further information about the content of any article in this newsletter, please contact any of the editors.
