Solving your payroll and HR issues with insights, answers, and action.

  • Startup
  • Payroll/Taxes
  • Human Resources
  • Employee Benefits
  • Business Insurance
  • Compliance
  • Marketing
  • Funding
  • Accounting
  • Management
  • Finance
  • Payment Processing
  • Taxes
  • Overtime
  • Outsourcing
  • Time & Attendance
  • Analytics
  • PEO
  • Outsourcing
  • HCM
  • Hiring
  • Onboarding
  • Recruiting
  • Retirement
  • Group Health
  • Individual Insurance
  • Health Care
  • Employment Law
  • Tax Reform

Steps for Setting up a 401(k) Plan to Help Your Employees Save for Retirement

Employee Benefits

Long-term saving is important to every generation in the workforce, and a solid retirement plan is one job benefit all employees can appreciate. Companies setting up a 401(k) plan often find that the process is relatively straightforward. Additionally, advances in payroll integration and recordkeeping make the implementation and maintenance of offering a retirement plan more affordable than ever for both large and small employers.

Required Steps for 401(k) Setup

The Department of Labor lists four steps to setting up a 401(k). Some of the steps can be outsourced in whole or in part, but the employer maintains a fiduciary duty to ensure that the plan is providing a benefit to participants.

  • Plan Document: The 401(k) plan document must comply with the IRS Code and outlines the details of the plan. Companies must also set up procedures to ensure the document is followed.
  • Set up a Trust: A trust must be set up to hold the plan assets.
  • Develop Recordkeeping: Accurate records must be maintained to track employee contributions and their current plan values. An outside recordkeeper can assist with plan setup and ongoing record management.
  • Provide Information to Employees: Information must be provided to plan participants on a periodic basis. Participants in the plan must also be made aware of the fees associated with the account. A disclosure form can help ensure the information communicated follows IRS requirements.

fiduciary responsibility

Ongoing Responsibilities

Even if the day-to-day management of a 401(k) plan is outsourced to a plan administrator or recordkeeper, the employer still maintains a fiduciary responsibility. As a fiduciary, the company is required to make decisions about the plan that are in the interest of participants. This would include providing an appropriate amount of investment options to allow for diversification and ensuring that plan documents are followed. As the plan sponsor, the employer is also responsible for keeping the plan in compliance.

Company Benefits

The benefits of a 401(k) plan extend beyond its ability to attract and retain employees. Employers can also receive an annual tax credit of up to $500 for the first three years of the plan. Plan expenses are tax-deductible as well – as are employer contributions, such as match or profit sharing – if elected as an option.

tax credits

Other Retirement Plan Choices

Based on the number of employees and the costs of the relative plans, another type of retirement plan may be a better option for your business than the 401(k). You may want to consider other common plan options available for small businesses such as a SIMPLE IRA.

The right retirement services provider can help guide companies through 401(k) plan setup and ongoing recordkeeping, allowing them to offer this important benefit to employees with relative ease.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
View More in Employee BenefitsView All Categories