Helping Small Employer Start 401k?

[Cat_Race]

Hi All,
I'm guessing there are a couple small business owners in the MMM crowd that might have some experience with this topic.  Advice or insight really appreciated!

I'm starting up with a small company here in the next few weeks where I'll be the 8th employee.  I was shocked to find that they don't currently have a 401k program set up, but I guess there are limitations for small companies that make these a pain with fewer than 8 employees.  I was happy that my comments about the importance of a 401k program were met with open arms and they're excited to have my input to help set one up.  Until now, I've only ever thought about the benefits from an employee perspective.  I like the tax benefits, and would be looking for something that would allow a high enough deduction % from my paycheck that I would still be able to max out the contribution limits before the end of the year.  But on the employer side, there are a million different providers with, I'm sure, widely varying cost structures.  And, there are many versions of a company sponsored retirement programs (SEP IRA, Simple IRA) that have various advantages in terms of reporting and costs that should be researched.  As far as I know, none have as high of contribution limits as a 401k does?

Has anyone here gone through the process of setting up a small company 401k?  What can you tell me?  Recommendations for providers?  Warnings about cost structures?  I hear there are "benefit brokers" - are they worth it?  Any good ones you can recommend?

Thanks so much in advance!

[catccc]

I think Vanguard might be a good one to look into for this.  Relatively low fees.  I looked into it once before and it seemed reasonable.  But their are reporting requirements surrounding running a 401K.  I remember doing some of them when I was in public for small business clients.  But that's pretty much all I remember, that I did them...  It was a long time ago.

[maizefolk]

With an extremely small company (8 employees) maxing out is going to be complicated by non-discrimination testing unless at least one of the below is true:

1. All eight employees are on board with trying to save the max.
2. You qualify as a non-highly compensated employee (you'll earn less than $120,000 and not, directly or indirectly, own >=5% of the company).
3. All eight employees qualify as highly compensated employees.

This isn't my field of expertise, so consult a professional but hopefully that'll help you come up with the right questions to ask when evaluating different potential 401k providers.

[Mesa]

I'd recommend contacting Vanguard.  Our small company (501c6 organization with 5 employees) switched to a Vanguard 401(k) this year, and employees are very pleased.  Our former 401(k) was with a plan offered by another company through a benefits broker.  We switched because a) employee returns were getting killed by fund and broker fees and b) the reports being provided to employees were very difficult to read and made it very hard to tell how returns were being calculated.

Vanguard will walk you through the whole set up process.  They can also outline for your company what the options are for structuring the 401(k) (things like match or set contribution to employees from the company, immediate vesting or vesting schedule, safe harbor, etc.) so that the structure works for both the company and the employees.

Please note I'm not an expert when it comes to the ins and outs of retirement plans.  But I am the CEO of our organization and was the person working with Vanguard (and their partner Ascensus) during the switchover process, and I was very pleased with their service and assistance.