The beauty of a 401(k) plan is the flexibility it offers. As a business owner, your main priority may be to offer a 401(k) plan to attract top talent. Or you may want to have a 401(k) plan to reduce taxes by offering a match or a profit-sharing component. Whatever the reason, you can adopt a plan and tailor it to suit your organization and business objectives.

Here are five things you need to know before adopting a one-size-fits-all 401(k) plan.

You can require zero hours worked and/or zero days to be eligible to enter the plan. This generous provision will be attractive to new employees. It will bring in all employees (unless otherwise stated), which may be an administrative burden if your industry has high turnover. You have some wiggle room and could opt for a three-month or six-month eligibility period with a number of hours worked. One year of service and 1,000 hours remain a standard provision. If cost efficiency is important to you, set the eligibility at one year of service.

2. Entry Date.

Entry date is when you can actually enroll and participate in the plan. You have to satisfy eligibility first if there is a wait or hours requirement. Entry dates can vary from daily, quarterly, monthly or semiannually. New participants are given enrollment kits, education, disclosures and other notices regarding the plan. If you are a small company who manages most things internally, you may like a more infrequent enrollment to keep the process very simple. Again, if cost efficiency is important to you, set entry dates as semi-annual.

3. Vesting. 

While your contributions (also referred to as deferrals) are always 100% vested, employer money may be set on a different vesting schedule. If profit sharing is on a six-year graded schedule, an employee needs 1,000 hours for six years to be 100% vested in profit- sharing. We see employers customize their own vesting schedule which is allowed with restrictions. You have to be 100% vested after six years. A cliff vesting schedule is allowed, but you have to be completely vested after the third year. If your industry has high turnover, a six-year vesting schedule may be a smart retention tool.

4. Last-Day Provision. 

When with your Third Party Administrator, ask them if a last day provision will work in your plan. It can be tricky if you have a high number of active participants terminating throughout the year because of required coverage testing. But, in many instances, you can have a last day provision where a participant who terminates before Dec. 31, regardless of hours worked that year, does not receive any discretionary match or profit sharing contribution. This may save you thousands of dollars every year.

5. Loans and Hardship. 

We see plan sponsors adamant on both sides of the fence regarding loans and hardships. Some employers like to offer options for unforeseen emergencies. On the other hand, employers look at the 401(k) plan as a retirement vehicle. They do not want to set a precedent for employees to view their 401(k) plan as a savings account with easy access. You can choose to have one or both in your plan. A loan is typically straightforward with an application and an amortization schedule. Payments will be payroll deducted. Hardships are more involved. The IRS explains what qualifies as a hardship. It is the employer’s responsibility to prove hardship. Hardships have ineligible money types (safe harbor for instance), and there is an early withdrawal penalty of 10% if you are under the age of 59½. Additionally, there is a six-month suspension where a participant is prohibited from contributing to the plan. 

It is not too late to adopt a 401(k) plan for 2017. If you are looking to reduce taxes and save for retirement, this is a great solution. ACG has retirement experts on staff to speak with you today. Please contact us with any 401(k) plan design questions you may have.