The Frugal Fiduciary Small Business 401(k) Blog
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Bar none, profit sharing contributions are the most flexible type of employer contribution a company can make to their 401(k) plan. These contributions are not only discretionary, but they can be made to any eligible plan participant – even if the participant fails to make 401(k) deferrals themselves. They can also be allocated using dramatically different formulas – allowing employers to meet a broad range of 401(k) plan goals with them.
Last year, we studied the plan designs of 2,767 small business 401(k) plans that averaged approximately 25 participants and $1M in assets. We found only 8.71% of these plans automatically enroll eligible employees who fail to make their own affirmative enrollment election. In contrast, a 2014 Willis Towers Watson study found 68% of 457 larger 401(k) plans include an automatic enrollment feature.
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You’ve been taxed with the responsibility of setting up a retirement plan for your tax exempt organization and now you’re trying to decide between a 403(b) or a 401(k) plan. You’ve Googled, you’ve read, you’ve cringed at the technical language presented to you, desperately trying to understand the differences. Been there, done that.
One of the most common goals for a small business 401(k) plan is maximizing owner contributions up to the legal limit - $60,000 for 2017 (assuming employee catch-up contributions). Often, the cheapest way to meet this goal is using a new comparability profit sharing contribution. Unlike other types of 401(k) profit sharing, these contributions permit an employer to allocate multiple contribution rates to different employee groups – making larger contribution rates to business owners possible.
In a 2016 401k plan design study of 2,767 small businesses, we found 66% permit participants to make after-tax Roth deferrals to their personal account. I think it’s safe to assume the high adoption rate of this 401k plan feature is due to participant demand.
Happy Holidays from the Frugal Fiduciary! As 2016 comes to a close, we looked back through this year’s blogs to find the most read. It turns out our most popular blogs related to the following topics: