How Combining a 401(k) Plan with Payroll can Benefit Small Businesses
If your small to midsize company offers a 401(k) plan to its employees, pat yourself on the back. A 401(k) plan is a benefit that most workers value highly. A 401(k) plan can give your organization a competitive edge in hiring and help it attract and retain talented staff. A 401(k) also demonstrates your company's concern for employees' financial security, promoting their loyalty and productivity.
Yet 401(k) plans are a relative rarity among small businesses. In 2006, only 28 percent of those working for companies with fewer than 100 employees had a retirement plan available from their employers, according to the Small Business Administration. That leaves almost 41 million workers in small companies without this important benefit. By contrast, the report notes that about 78 percent of workers in large firms—about 50 million people—had a company retirement plan available.
One reason that many small businesses don't offer 401(k) plans is that their leaders erroneously believe they are only for large businesses or that they cost too much. Actually, 401(k) plans can be cost-effective for companies of any size, with lower operating costs and bigger advantages for both employers and employees than many other benefits.?
401(k) plans involve complex administration
Another reason that small employers hesitate to offer a 401(k) plan is because it requires complex administration, which includes providing accurate employee census data. Every time a company sends a 401(k) contribution for processing, it must also submit electronic data to support recordkeeping. In general, retirement plan providers require complete census data on all employees to track eligibility and plan entry dates. Such functions, however, can be integrated with payroll administration.
Integrate 401(k) administration and payroll processing
By engaging your payroll processing company as your 401(k) recordkeeper, you leverage the vendor's knowledge of fiduciary regulations. The payroll firm can integrate 401(k) plan tasks with payroll administration in order to automate the transmission of contributions and the collection of required data. Record-keeping is streamlined, paperwork is minimized while the responsibility for managing the 401(k) plan resides with the trustee.
Both your company and your employees benefit from integrating your 401(k) plan with your payroll vendor:
- Staff contributions to the plan will be invested in a timely manner, since the payroll service already processes workforce funds and simply adds the necessary deductions.
- A payroll service — particularly a large, well-established firm — uses secure systems and standards to handle contributions and is facile at handling myriad transactions and a large volume of funds.
- The vendor must adhere to federal regulations governing qualified retirement plans, and will process and provide quarterly management reports, compliance testing results, participant statements and annual DOL and IRS-required forms for your organization.
A fully integrated employee retirement plan and payroll processing system can greatly reduce paperwork for your staff. It can help company managers deal with federal fiduciary regulations, and it helps small businesses offer a benefit that gives them a competitive edge in the marketplace.