Most 401k plans can be a powerful tool in motivating employees in your company. If you can find simple 401k plans that will not only meet your needs, but theirs as well, then you have accomplished the first step in an employer/employee healthy relationship.

Here a some reasons why simple 401k plans will benefit your business: (1) A simple 401k plan can help attract talented employees and then keep them in your employ (2) It allows employees to decide how much to contribute to their accounts (3) Employers get to a tax deduction for contributing to employee’s accounts (4) The money contributed may grow through investments in mutual funds, savings accounts, stocks, and other investment routes (5)The Federal government generally doesn’t tax these contributions and earnings until they are disbursed and (6) To ease the administrative load, a simple 401k plan allows participants to take benefits with them when they leave the company.

After making the decision to use a 401k plan, you must take certain basic actions. For example, you need to decide whether or not to set up the plan yourself or consult with a financial advisor to help you establish and maintain the plan. The actions necessary to have a 401k plan are to first, adopt a written plan. This serves as the foundation for day-to-day plan operations. Second, arrange a trust fund for the plan’s assets. A plan’s assets must be held in trust to assure that assets are used solely to benefit the participants and their beneficiaries. The trust must have at least one trustee to handle contributions, plan investments, and distributions to and from the 401k plan. Third, develop a record keeping system. To track and record earnings and losses, plan investments, expenses distributions in the participants accounts, an accurate record system is a must. And last, provide plan information to participants. It is important for employees to be notified concerning any changes or updates with their 401k plan. Simple 401k plans provide these in a summary plan description sent to all participants.

Generally, simple 401k plans include a mix of rank-and-file employees and owners or managers. However, some employees may be excluded from a 401k plan if they have not reached the age of 21, have not completed a year of active service, or are covered by a collective bargaining agreement. Also, employees who are older workers, cannot be excluded from the plan. A lawsuit could be filed in this case by the employee if this was to occur.

Another unique option you have in establishing and maintaining simple 401k plans is deciding on your business’s contributions to any participants, if there are any contributions toward the plan. You have further options for your participants if you decide to contribute to your 401k plan. You can contribute a percentage of each employee’s compensation for allocation to the employee’s account (called a non-elective contribution), or you can match the amount your employees decide to contribute (within the limits of current law) or you can do both. Either option will be a benefit to you and your employees retirement.