First time offering a 401(k)? 5 questions to ask to complete Fast Track

LAST REVIEWED Jan 24 2024
15 MIN READEditorial Policy

As a small business owner, offering a retirement plan might seem out of reach. You may believe that providing one is too expensive or requires a fair amount of manual work. While some retirement plan providers charge excess fees and aren’t very automated, others (like Human Interest) provide more transparent pricing and robust, tech-enabled services and features that make it seamless to administer your plan. 

With that said, you may have more questions about providing a 401(k). Read on to learn how getting started may be easier than you thought. 

Q1: Why should I offer my employees a 401(k)?

It's essential to consider your organization’s goals of offering retirement benefits, as this can help determine the type of plan you select and how you will set it up. 

1. Reducing employee turnover and encouraging hiring 

Most employees want access to a retirement plan and are more likely to stay at a company that offers one. According to a study by Human Interest in partnership with OnePoll, a retirement plan is the second most wanted benefit after health insurance. Additional research by Gusto has found that providing retirement benefits makes employees 40% less likely to quit after their first year. 

But if you are still a skeptic, our own customers have reported that providing a retirement plan has enabled them to see a decrease in their turnover rates compared to industry standards. 

How Snap Tire reduced turnover with Human Interest

“Our turnover has significantly slowed in the last 12 months versus the first 12 months I was here,” said Ryan Butler, Vice President of Snap Tire. “I feel like [in comparison] to our industry, our turnover is fairly low.”

2. Maximizing your own personal retirement savings 

Another common reason to provide a retirement savings plan for your business is that it allows you, the business owner, to start saving for retirement. In general, providing a 401(k) can make the habit of saving for retirement much more consistent because it automates the process of deducting funds from your payroll into a dedicated retirement savings account. If you are self-employed, Human Interest provides solo 401(k) plans that allow you to contribute to a qualified retirement plan–and if you eventually want to grow your business, we can scale your plan with you. 

3. Complying with state regulations 

Several states—including California, Colorado, Connecticut, Massachusetts, Illinois, and more—require employers to provide a qualified retirement plan such as a 401(k). That number is also growing, as nearly every state in America has studied retirement program options or considered legislation requiring employers to offer their workers retirement benefits. As of October 2023, 19 states have either passed laws or have pending legislation about retirement programs. 

It’s important to know what’s required of businesses in your state and find the best retirement plan for you and your employees. If you operate a business in a state with existing or upcoming legislation, you can avoid penalties by offering a retirement plan today. In most cases, an affordable, customizable Human Interest 401(k) can satisfy the mandate in your state and allow you and your employees to save more money each year. These penalties can cost thousands of dollars, especially if you do not meet the deadlines on time. 

Illinois Postcard

The above notice is a real example of how much a small business was fined for not staying compliant with Illinois state retirement legislation laws. 

Q2: How does a 401(k) work?

A 401(k) is a retirement plan offered by employers that allows employees to contribute a percentage of their salary to save for retirement. Contributions to 401(k) plans are typically invested in a diversified portfolio of mutual funds. In a 401(k) plan, investments come from employee deferrals (i.e., the portion of an employee's salary they elect to contribute to their account) or employer contributions (i.e., the amount an employer chooses to contribute to an employee’s savings plan). 

All 401(k) plans must allow eligible employees to contribute deferrals from their paychecks on a pre-tax basis. These contributions are made to an account before federal and state taxes are taken out. Many 401(k) plans also allow participants to contribute Roth deferrals. Rather than paying taxes on the contribution at the point of withdrawal, Roth contributions are made on an after-tax basis (also known as a post-tax deduction). 

In addition to offering a plan, many employers decide to match employee contributions, which can help make the 401(k) even more attractive to employees. With a match, your plan automatically passes compliance tests with safe harbor status, reducing your administrative burden and risk of penalties. Employers also have the opportunity to take advantage of a new tax credit for employer-matching contributions, which was included in the SECURE Act 2.0. 

What is SECURE Act 2.0? 

The SECURE Act 2.0 is a monumental piece of legislation that added over 90 new retirement plan provisions to expand retirement access and boost incentives for small businesses to offer retirement plans. Of these provisions, the SECURE Act 2.0 provides several new tax advantages for small businesses, including a new tax credit for employer contributions.

SECURE Act tax credit 

Businesses with up to 50 employees can receive a tax credit based on a percentage of employer contributions, up to $1,000 per employee for employees making less than $100,000 in the prior year. Businesses with 51 to 100 employees also qualify for this credit, but the amount is phased out depending on employee count and other factors.

Q3. What choices do I have to make? 

When creating a 401(k) plan, the two most important choices you’ll have to make are: 

What level of matching should I offer my employees? 

An employer match is when you match the amount of money an employee chooses to invest into their 401(k) account, up to a certain percentage. Employers may offer a match because they want to pass nondiscrimination testing requirements, claim the employer contributions tax credit, and help all employees (themselves included) save more for retirement and pay less in personal and corporate taxes.

We currently provide three types of matching options in our Fast Track offering: Limited, Enhanced, and Premium. Although all match types will qualify your plan for safe harbor status (this means that it can help you pass key IRS testing requirements, reducing your administrative work and decreasing the risk of unexpected required contributions), we recommend selecting either Enhanced or Premium. 

Did you know?

Around 80% of Human Interest customers who complete our Fast Track application choose to offer a match for their employees.1

An Enhanced or Premium match may be the most beneficial to your employees because they can keep their match dollars, unlike Limited, which returns match dollars to your company if employees leave within one year. Allowing your employees to keep their match dollars immediately may help influence employee turnover rates. Providing retirement benefits makes an employee 40% less likely to quit their first year, while workers rank a company 401(k) plan match as the most important factor when reaching retirement goals. 

The core difference between Enhanced and Premium is the match amount. Enhanced, which is our most popular option, allows you to match up to 4% of your employees’ salaries, while Premium allows you to match up to 6%. A more generous match percentage can further incentivize your employees to actually participate, and save, for retirement. And because 79% of employees prefer new or additional benefits over a pay raise, a higher match may also help drive your recruiting and retention efforts.

What level of service do I want? 

Once you’ve selected the match option, you’ll then need to consider the level of service you’ll want from Human Interest. We currently offer three service levels: Essentials, Complete, and Concierge. 

With Essentials and Complete, you do not get a dedicated relationship manager. As our mid-tier option, Complete offers higher levels of administrative assistance compared to Essentials. It can be a better option for businesses that need more help with running the day-to-day burdens of managing a 401(k), and would like Human Interest to serve as their fiduciary in certain circumstances, but don’t need a person who can help with managing plan compliance and documentation review.  

Essentials is our most basic service level. You’ll take on more administrative and fiduciary responsibilities. This includes filing forms and managing the 401(k) lifecycle of employee onboarding and offboarding.

According to internal Human Interest data, around 90% of our plans are at the Concierge level. With Concierge, you get all of the benefits of our other two service levels, but the most notable distinction is that you get a dedicated Relationship Manager, who will be your single point of contact when you need help with: 

  • Onboarding your employees

  • Consultation with plan design and administration

  • Filing important documents such as Form 5500 

Q4. What will be required from me?

Aside from your level of involvement in administration work, which will depend on your plan’s service level selection, Human Interest will need to connect your payroll provider to our system. Integrating your payroll provider with Human Interest simplifies and reduces the hours of manual work of 401(k) administration, and can be more accurate and reliable in terms of tracking retirement data, ensuring your plan is up-to-date and compliant, and ensuring that your employees receive the right information regarding their plan. 

At Human Interest, we integrate with more than 400+ leading payroll providers to help automate the entire 401(k) process. 

Q5. How do I make this a great experience for my employees?

At Human Interest, we’ve created a seamless experience for you and your employees. Employees can set up their accounts and begin saving with a streamlined dashboard experience and educational resources and tools. For example, Human Interest was the first 401(k) provider to offer a 3% cash back program known as (k)ickstart™, which allows eligible employees to earn up to $250 cash back on their retirement contributions.² The program is designed to encourage first-time savers to build their retirement savings. As part of the program, we also provide employees with free education through a 10-part course featuring bite-sized videos and more. 

We also provide employees with free webinars, planning tools such as calculators, and educational content (via our Learning Center and beyond) about the basics of retirement planning and more. 

Additionally, our platform is designed to help you make smart investing decisions, automatically. Our technology can help you invest your funds in a diversified portfolio of low-cost funds which rebalance quarterly based on a portfolio determined by age and expected years until retirement. Employees may select and maintain their own funds if they so choose. 

Get started with Human Interest

There are several factors to consider when signing up for a 401(k) plan. At Human Interest, we believe that businesses deserve a seamless 401(k) experience. Overall, providing a 401(k) can help you maximize retirement savings for both you and your employees, reduce employee turnover and increase hiring (especially if you offer a matching contribution) and help you stay compliant with state mandates. Additionally, designing and implementing a plan that works best for you and your employees, (including choices in matching contributions, plan service levels, payroll integrations, and the employee experience) can also make your 401(k) administrative experience painless.  

Start your application with Human Interest today.

Zoe Weisner is a content marketing manager at Human Interest. Zoe has spent the majority of her career in the B2B fintech space, with half a decade of experience writing content about small business, banking, and personal finance.

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Notes

1

Based on Fast Track enrollments, July - October 2023.

2

Offer is available to individuals participating in a 401(k) or 403(b) plan sponsored by their employer and administered by Human Interest Inc.; and making $60,000 or less in gross income; and contributing at least 8% over a 12-month period. Must submit a claim form to claim the award. Minimum award is $100 and max is $250. The (k)ickstart™ program is administered and offered by the recordkeeper, Human Interest Inc. ("HII"). HII's subsidiary and registered investment adviser, Human Interest Advisors ("HIA"), receives a fee based on assets under management. As such, HIA will earn more in asset-based fees if a plan participant increases their contribution in connection with the program. Additional terms apply. See program details.This program is administered and offered by the recordkeeper, Human Interest Inc. ("HII"). HII's subsidiary and Registered Investment Adviser, Human Interest Advisors' asset-based fees will increase if a plan participant participates in the program.

3

3% cash back is available to eligible individuals making $60,000 or less in gross income and contributing at least 8% of every paycheck to an eligible Human Intrest plan over a 12-month period. Must submit a claim form to claim the award. Minimum award is $100 and max is $250. Additional requirements apply. See terms and conditions. This program is administered and offered by Human Interest Inc. Its subsidiary and registered investment adviser, Human Interest Advisors will earn more in asset-based fees if a plan participant increases their contribution in connection with the program.