New 401(K) Plan Slashes Employer Costs

There is still a substantial percentage of companies that don't offer 401(k) plans because they believe the costs of administering a 401K are too prohibitive. And until recently they were correct. But this has changed in 2024 with a new simplified version of the 401K plan.

First a bit of history. Traditional 401K plan costs include fees and expenses for compliance testing. Additionally, there are also fees for administering the plan: managing deductions and employer contributions, staying compliant with changing regulations, and more. Small companies especially cannot afford to dedicate employees to manage all of these complexities. This requires the hiring of team members dedicated specifically to employee benefits, which companies may not have the capacity or budget to hire.

However, starting in 2024 companies may now offer a new, more cost effective 401(k) called a Starter 401(k). These plans were made possible based on a provision in the new SECURE 2.0 regulation, whose objective is to give those employers not already offering a retirement plan an alternative option. It's a simplified version of the traditional 401(k) plan that has the following benefits:

Less administrative work: Employees are auto-enrolled for contributions of at least 3% of their salaries and employers cannot contribute to plans. Therefore employee participation is not as administrative heavy for employers. Employees have the option to opt out of the plan if they choose to.

No testing: Employers can administer Starter 401(k) plans at a much lower cost because they do not require IRS testing, like the traditional 401(k). This means the fees to administer the plan are much lower.

Encouraging employees' savings: While employers are not allowed to contribute dollars to employees' retirement, employees have the ability to contribute up to $6,000 per year, tax-free.

To get more info on these plans click the link below.

https://www.guideline.com/blog/what-are-starter-401k-plans/