401K Startups, State Mandates, and Tax Credit Calculator

Now is a great time for business owners not offering their employees a retirement plan to consider this strong employee retention tool. Currently, 32% of businesses do not provide access to a retirement plan for their employees, according to a 2021 study by the Bureau of Labor Statistics at the Department of Labor. 

Two Big drivers of growth in this space are: 

1. State Retirement Plan Mandates – 6 states have mandates in place, 23 states are working on legislation or have already passed legislation for a state mandate. 

1. Tax Credits - SECURE 2.0 extends the $5,000/year tax credit for employers with 50 or less employees to offset up to 100% of the cost of offering a 401(k) plan for the first three years the plan is in effect. 

Below is a link to a map showing which states have mandates or will soon. There is also a link to a tax credit calculator to show you the tax credits available to a specific business that wants to start a new plan.   

• State Mandate Map - Click here, and scroll down about half way on the page.

• Tax Credit Calculator - Follow this link to show a business owner how much they can expect to receive in tax credits for starting a new plan.

Starting a New Plan

Business owners often want to offer this key benefit to their employees, but are worried about their own capacity to manage the plan and the potential liability a plan can create. Business owners who sponsor a plan have fiduciary obligations to the plan participants to act in their best interest. This includes making timely deposits, selecting appropriate vendors, providing required notices, etc. These tasks can feel daunting to a first-time plan sponsor, but most of these responsibilities can be outsourced to outside named fiduciaries.   

While the idea of starting a retirement plan may feel daunting, some simple blocking and tackling on key decisions can make this an easy process for any busy owner.   

1. What is your focus for offering the plan? Employee retention? Maximizing retirement savings for the owner? 

1. Does your business have a higher turnover of employees in the first two years? 

1. Do you anticipate most of your employees will want to participate in the retirement plan? 

1. Do you have a high percentage of employees who are part-time or seasonal? 

The answers to this question will help an advisor guide you through the plan design process to create a plan tailored to your specific needs and wants.   

Minimizing Fiduciary Concerns 

There are three main areas where a business owner needs to be concerned about fiduciary liability. As the sponsor of a retirement plan it is your duty to create a plan and utilize vendors that will act in the best interest of your plan participants and their beneficiaries.   

1. Administration of the plan.  Are you making your deposits on a timely basis? You have notices you’re likely required to send out every year, and to new employees before they become eligible for the plan. Many of these risks can be minimized by using a 401(k) Recordkeeper that already integrates with your payroll system, and that is willing to send out notices on your behalf. Without this support you can also hire a 3(16) fiduciary that can ensure your compliance with plan administration. 

1. Plan Investments. As a business owner you don’t want to take the time to research the most appropriate investment options for your employees. Unless you have a named 3(38) fiduciary on your plan then you need to have a documented process for selecting your investment lineup. Competition has driven the costs for a 3(38) down significantly, even for smaller plans, and it makes too much sense to not add this protection to your plan. 

1. Vendors. As the plan sponsor you can offload most of your liability to named fiduciaries, but you still must review these vendors. Your advisor should be providing benchmarking data to validate their cost and services, and they should be pricing your Recordkeeper every three years in the open market. If you’re utilizing 3(16) and 3(38) vendors you want to keep records of why you chose these vendors and review their services on a regular basis as well. 

Next Steps 

Business owners are focused on building a successful business and wanting to create a culture of success for their employees. A 401(k) plan should be a benefit and not a distraction or liability. If you take anything from this message understand that offering a 401(k), or administering a plan if you already have one, can be simple and streamlined if your advisor is working as your advocate.  

To help you and your business get started on your 401(k) journey, contact MN Wealth Advisors at (913) 897-2074 or visit us at MNWealthadvisors.com.