401k Plan Setup

Understanding 401(k) Fees Come retirement time, the number of 401(k) plan fees charged can make a major difference in your employees’ account balances—and their futures. Did you know that the smallest 401(k) plans often pay the most in fees? We believe that you don’t have to pay high fees to provide your employees with a top-notch 401(k) plan. In fact, Betterment offers comprehensive plan solutions at one of the lowest costs in the industry. Why do 401(k) fees matter? The difference between a 1% fee and a 2% fee may not sound like much, but in reality, higher 401(k) fees can take a major bite out of your participants’ retirement savings. Consider this example: Triplets Jane, Julie, and Janet each began investing in their employers’ 401(k) plan at the age of 25. Each had a starting salary of $50,000, increased by 3% annually, and contributed 6% of their pre-tax salary with no company matching contribution. Their investments returned 6% annually. The only difference is that their retirement accounts were charged annual 401(k) fees of 1%, 1.5%, and 2%, respectively. Forty years later, they’re all thinking about retiring and decide to compare their account balances. Here’s what they look like:   Annual 401(k) fee Account balance at age 65 Jane 1% $577,697 Julie 1.5% $517,856 Janet 2% $465,894 Information is hypothetical and provided for educational purposes only. As such, these figures do not reflect Betterment’s management fee and do not reflect any actual client performance As you can see, come retirement time, the amount of fees charged can make a major difference in your employees’ account balances—and their futures. Why should employers care about 401(k) fees? You care about your employees, so naturally, you want to help them build brighter futures. But beyond that, it’s your fiduciary duty as a plan sponsor to make sure you’re only paying reasonable 401(k) fees for services that are necessary for your plan. The Department of Labor (DOL) outlines rules that you must follow to fulfill this fiduciary responsibility, including “ensuring that the services provided to the plan are necessary and that the cost of those services is reasonable” and has published a guide to assist you in this process. Generally, any firm providing services of $1,000 or more to your 401(k) plan is required to provide a fee disclosure, which is the first step in understanding your plan’s fees and expenses. It’s important to note that the regulations do not require you to ensure your fees are the lowest available, but that they are reasonable given the level and quality of service and support you and your employees receive. Benchmark the fees against similar retirement plans (by number of employees and plan assets, for example) to see if they’re reasonable.  What are the main types of fees? Typically, 401(k) fees fall into three categories: administrative fees, individual service fees, and investment fees. Let’s dig a little deeper into each category: Plan administration fees—Paid to your 401(k) provider, plan administration fees typically cover 401(k) set-up fees, as well as general expenses such as recordkeeping, communications, support, legal, and trustee services. These costs are often assessed as a flat annual fee. Investment fees—Investment fees, typically assessed as a percentage of assets under management, may take two forms: fund fees that are expressed as an expense ratio or percentage of assets, and investment advisory fees for portfolio construction and the ongoing management of the plan assets. Betterment, for instance, acts as investment advisor to its 401(k) clients, assuming full fiduciary responsibility for the selection and monitoring of funds. And as is also the case with Betterment, the investment advisory fee may even include personalized investment advice for every employee. Individual service fees—If participants elect certain services—such as taking out a 401(k) loan—they may be assessed individual fees for each service. Wondering what you and your employees are paying in 401(k) fees? Fund fees are detailed in the funds’ prospectuses and are often wrapped up into one figure known as the expense ratio, expressed as a percentage of assets. Other fees are described in agreements with your service providers. High quality, low fees Typically, mutual funds have dominated the retirement investment landscape, but in recent years, exchange-traded funds (ETFs) have become increasingly popular. At Betterment, we believe that a portfolio of ETFs, in conjunction with personalized, unbiased advice, is the ideal solution for today’s retirement savers. Who pays 401(k) fees: the employer or the participant? The short answer is that it depends. As the employer, you may have options with respect to whether certain fees may be allocated to plan participants. Expenses incurred as a result of plan-related business expenses (so-called “ settlor expenses”) cannot be paid from plan assets. An example of such an expense would be a consulting fee related to the decision to offer a plan in the first place. Other costs associated with plan administration are eligible to be charged to plan assets. Of course, just because certain expenses can be paid by plan assets doesn’t mean you are off the hook in monitoring them and ensuring they remain reasonable. Plan administration fees are often paid by the employer. While it could be a significant financial responsibility for you as the business owner, there are three significant upsides:   Reduced fiduciary liability—As you read, paying excessive fees is a major source of fiduciary liability. If you pay for the fees from a corporate account, you reduce potential liability.   Lowered income taxes—If your company pays for the administration fees, they’re tax deductible! Plus, you can potentially save even more with the new SECURE Act tax credits for starting a new plan and for adding automatic enrollment.   Increased 401(k) returns—Do you take part in your own 401(k) plan? If so, paying 401(k) fees from company assets means you’ll be keeping more of your personal retirement savings. Fund fees are tied to the individual investment options in each participant’s portfolio. Therefore, these fees are paid from each participant’s plan assets. Individual service fees are also paid directly by investors who elect the service, for example, taking a plan loan. How can you minimize your 401(k) fees? Minimizing your fees starts with the 401(k) provider you choose. In the past, the price for 401(k) plan administration was quite high. However, things have changed, and now the era of expensive, impersonal, unguided retirement saving is over. Innovative companies like Betterment now offer comprehensive plan solutions at a fraction of the cost of most providers. Betterment combines the power of efficient technology with personalized advice so that employers can provide a benefit that’s truly a benefit, and employees can know that they’re invested correctly for retirement. No hidden fees. Maximum transparency. Costs are often passed to the employee through fund fees, and in fact, mutual fund pricing structures incorporate non-investment fees that can be used to pay for other types of expenses. Because they are embedded in mutual fund expense ratios, they may not be explicit, therefore making it difficult for you to know exactly how much you and your employees are paying. In other words, most mutual funds in 401(k) plans contain hidden fees. At Betterment, we believe in transparency. Our use of ETFs means there are no hidden fees, so you and your employees are able to know how much you’re paying for the underlying investments themselves. Plus, our pricing structure unbundles the key offerings we provide—advisory, investment, record keeping, and compliance—and assigns a fee to each service. A clearly defined fee structure means no surprises for you—and more money working harder for your employees.

401(k) Glossary of Terms Whether you're offering a 401(k) for the first time or need a refresh on important terms, these definitions can help you make sense of industry jargon. 3(16) fiduciary: A fiduciary partner hired by an employer to handle a plan’s day-to-day administrative responsibilities and ensure that the plan remains in compliance with Department of Labor regulations. 3(21) fiduciary: An investment advisor who acts as co-fiduciary to review and make recommendations regarding a plan’s investment lineup. This fiduciary provides guidance but does not have the authority to make investment decisions. 3(38) fiduciary: A codified retirement plan fiduciary that’s responsible for choosing, managing, and overseeing the plan’s investment options. 401(k) administration costs: The expenses involved with the various aspects of running a 401(k) plan. Plan administration includes managing eligibility and enrollment, coordinating contributions, processing distributions and loans, preparing and delivering legally required notices and forms, and more. 401(k) committee charter: A document that describes the 401(k) committee’s responsibilities and authority. 401(k) compensation limit: The maximum amount of compensation that’s eligible to draw on for plan contributions, as determined by the IRS. In 2020, this limit is $285,000. Keep in mind that contributions are also limited by the 401(k) contribution limit, which is $19,500 in 2020 for those under age 50. 401(k) contribution limits: The maximum amount that a participant may contribute to an employer-sponsored 401(k) plan, as determined by the IRS. For 2020, the limits are $19,500 for individuals under age 50, and $26,000 for individuals age 50 and older (including $6,500 in catch-up contributions). 401(k) force-out rule: Refers to a plan sponsor’s option to remove a former employee’s assets from the retirement plan. The sponsor has the option to “force out” these assets (into an IRA in the former employee’s name) if the assets are less than $5,000. 401(k) plan: An employer-sponsored retirement savings plan that allows participants to save money on a tax-advantaged basis. 401(k) plan fees: The various fees associated with a plan. These can include fees for investment management, plan administration, fiduciary services, and consulting fees. While some fees are applied at the plan level — that is, deducted from plan assets — others are charged directly to participant accounts. 401(k) plan fee benchmarking: The process of comparing a plan’s fees to those of other plans in similar industries with roughly equal assets and participation rates. This practice can help to determine if a plan’s fees are reasonable per ERISA requirements. 401(k) set-up costs: The expenses involved in establishing a 401(k) plan. These costs cover plan documents, recordkeeping, investment management, participant communication, and other essential aspects of the plan. 401(k) withdrawal: A distribution from a plan account. Because a 401(k) plan is designed to provide income during retirement, a participant generally may not make a withdrawal until age 59 ½ unless he or she terminates or retires; becomes disabled; or qualifies for a hardship withdrawal per IRS rules. Any other withdrawals before age 59 ½ are subject to a 10% penalty as well as regular income tax. 404(a)(5) fee disclosure: A notice issued by a plan sponsor that details information about investment fees. This notice, which is required of all plan sponsors by the Department of Labor, covers initial disclosure for new participants, new fees, and fee changes. 404(c) compliance: Refers to a participant’s (or beneficiary’s) right to choose the specific investments for 401(k) plan assets. Because the participant controls investment decisions, the plan fiduciary is not liable for investment losses. 408(b)(2) fee disclosure: A notice issued by a plan service provider that details the fees charged by the provider (and its affiliates or subcontractors) and reports any possible conflicts of interest. The Department of Labor requires all plan fiduciaries to issue this disclosure. Actual contribution percentage (ACP) test: A required compliance test that compares company matching contributions among highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). Actual deferral percentage (ADP) test: A required compliance test that compares employee deferrals among highly compensated employees (HCEs) and non-highly compensated employees (NHCEs). Annual fee disclosure: A notice issued by a plan sponsor that details the plan’s fees and investments. This disclosure includes plan and individual fees that may be deducted from participant accounts, as well as information about the plan’s investments (performance, expenses, fees, and any applicable trade restrictions). Automated Clearing House (ACH): A banking network used to transfer funds between banks quickly and cost-efficiently. Automatic enrollment (ACA): An option that allows employers to automatically deduct elective deferrals into the plan from an employee’s wages unless the employee actively elects not to contribute or to contribute a different amount. Beneficiary: The person or persons who a participant chooses to receive the assets in a plan account if he or she dies. If the participant is married, the spouse is automatically the beneficiary unless the participant designates a different beneficiary (and signs a written waiver). If the participant is not married, the account will be paid to his or her estate if no beneficiary is on file. Blackout notice: An advance notice of an upcoming blackout period. ERISA rules require plan sponsors to notify participants of a blackout period at least 30 days in advance. Blackout period: A temporary period (three or more business days) during which a 401(k) plan is suspended, usually to accommodate a change in plan administrators. During this period, participants may not change investment options, make contributions or withdrawals, or request loans. Catch-up contributions: Contributions beyond the ordinary contribution limit, which are permitted to help people age 50 and older save more as they approach retirement. In 2022, contribution limits (set by the IRS) are $20,500 on ordinary contributions and $6,500 on catch-up contributions, for a combined limit of $27,000. Compensation: The amount of pay a participant receives from an employer. For purposes of 401(k) contribution calculations, only compensation is considered to be eligible. The plan document defines which form, for example the W-2, is referred to in determining the compensation amount. Constructive receipt: A payroll term that refers to the impending receipt of a paycheck. The paycheck has not yet been fully cleared for deposit in the employee’s bank account, but the employee has access to the funds. Deferrals: Another term for contributions made to a 401(k) account. Defined contribution plan: A tax-deferred retirement plan in which an employee or employer (or both) invest a fixed amount or percentage (of pay) in an account in the employee’s name. Participation in this type of plan is voluntary for the employee. A 401(k) plan is one type of tax-deferred defined contribution plan. Department of Labor (DOL): The federal government department that oversees employer-sponsored retirement plans as well as work-related issues including wages, hours worked, workplace safety, and unemployment and reemployment services. Distributions: A blanket term for any withdrawal from a 401(k) account. A distribution can include a required minimum distribution (RMD), a loan, a hardship withdrawal, a residential loan, or a qualified domestic relations order (QDRO). Docusign: A third-party platform used for exchanging signatures on documents, especially during plan onboarding. EIN: An Employer Identification Number (EIN) is also known as a Federal Tax Identification Number, and is used to identify a business entity. Eligible automatic enrollment arrangement (EACA): An automatic enrollment (ACA) plan that applies a default and uniform deferral percentage to all employees who do not opt out of the plan or provide any specific instructions about deferrals to the plan. Under this arrangement, the employer is required to provide employees with adequate notice about the plan and their rights regarding contributions and withdrawals. ERISA: Refers to the Employee Retirement Income Security Act of 1974, a federal law that requires individuals and entities that manage a retirement plan (fiduciaries) to follow strict standards of conduct. ERISA rules are designed to protect retirement plan participants and secure their access to benefits in the plan. Excess contributions: The amount of contributions to a plan that exceed the IRS contribution limit. Excess contributions made in any year (and their earnings) may be withdrawn without penalty by the tax filing deadline for that year, and the participant is then required to pay regular taxes on the amount withdrawn. Any excess contributions not withdrawn by the tax deadline are subject to a 6% excise tax every year they remain in the account. Exchange-traded fund (ETF): Passively managed index funds that feature low costs and high liquidity. ETFs make it easy to manage portfolios efficiently and effectively. All of Betterment’s 401(k) investment options are ETFs. Fee disclosure: Information about the various fees related to a 401(k) plan, including plan administration, fiduciary services, and investment management. Fee disclosure deadline: The date by which a plan sponsor must provide plan and investment-related fee disclosure information to participants. The DOL requires you to send your participant fee disclosure notice at least once in any 14-month period without regard to whether the plan operates on a calendar-year or fiscal-year basis. Fidelity bond: Also known as a fiduciary bond, this bond protects the plan from losses due to fraud or dishonesty. Every fiduciary who handles 401(k) plan funds is required to hold a fidelity bond. Fiduciary: An individual or entity that manages a retirement plan and is required to always act in the best interests of employees who save in the plan. In exchange for helping employees build retirement savings, employers and employees receive special tax benefits, as outlined in the Internal Revenue Code. When a company adopts a 401(k) plan for employees, it becomes an ERISA fiduciary and takes on two sets of fiduciary responsibilities:     “Named fiduciary” with overall responsibility for the plan, including selecting and monitoring plan investments     “Plan administrator” with fiduciary authority and discretion over how the plan is operated Most companies hire one or more outside experts (such as an investment advisor, investment manager, or third-party administrator) to help manage their fiduciary responsibilities. Form 5500: An informational document that a plan sponsor must prepare to disclose the identity of the plan sponsor (including EIN and plan number), characteristics of the plan (including auto-enrollment, matching contributions, profit-sharing, and other information), the numbers of eligible and active employees, plan assets, and fees. The plan sponsor must submit this form annually to the IRS and the Department of Labor, and must provide a summary to plan participants. Smaller plans (less than 100 employees) may instead file Form 5500-SF. Hardship withdrawal: A withdrawal before age 59 ½ intended to address a severe and immediate need (as defined by the IRS). To qualify for a hardship withdrawal, a participant must provide the employer with documentation (such as a medical bill, a rent invoice, funeral expenses) that shows the purpose and amount needed. If the hardship withdrawal is authorized, it must be limited to the amount needed (adjusted for taxes and penalties), may still be subject to early withdrawal penalties, is not eligible for rollover, and may not be repaid to the plan. Highly compensated employee (HCE): An employee who earned at least $125,000 in compensation from the plan sponsor during the previous year (if 2019), or at least $130,000 if the previous year is 2020, or owned more than 5% interest in the plan sponsor’s business at any time during the current or previous year (regardless of compensation). Inception to date (ITD): Refers to contribution amounts since the inception of a participant’s account. Internal Revenue Service (IRS): The U.S. federal agency that’s responsible for the collection of taxes and enforcement of tax laws. Most of the work of the IRS involves income taxes, both corporate and individual. Investment advice (ERISA ruling): The Department of Labor’s final ruling (revised in 2020) on what constitutes investment advice and what activities define the role of a fiduciary. Investment policy statement (IPS): A plan’s unique governing document, which details the characteristics of the plan and assists the plan sponsor in complying with ERISA requirements. The IPS should be written carefully, reviewed regularly, updated as needed, and adhered to closely. Key employee: An employee classification used in top-heavy testing. This is an employee who meets one of the following criteria:     Ownership stake greater than 5%     Ownership stake greater than 1% and annual compensation greater than $150,000     Officer with annual compensation greater than $200,000 (for 2022) Non-discrimination testing: Tests required by the IRS to ensure that a plan does not favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs).   Non-elective contribution: An employer contribution to an employee’s plan account that’s made regardless of whether the employee makes a contribution. This type of contribution is not deducted from the employee’s paycheck. Non-highly compensated employee (NHCE): An employee who does not meet any of the criteria of a highly compensated employee (HCE). Plan sponsor: An organization that establishes and offers a 401(k) plan for its employees or members. Qualified default investment alternative (QDIA): The default investment for plan participants who don’t make an active investment selection. All 401(k) plans are required to have a QDIA. For Betterment’s 401(k), the QDIA is the Core Portfolio Strategy, and a customized risk level is set for each participant based on their age. Qualified domestic relations order (QDRO): A document that recognizes a spouse’s, former spouse’s, child’s, or dependent’s right to receive benefits from a participant’s retirement plan. Typically approved by a court judge, this document states how an account must be split or reassigned. Plan administrator: An individual or company responsible for the day-to-day responsibilities of 401(k) plan administration. Among the responsibilities of a plan administrator are compliance testing, maintenance of the plan document, and preparation of the Form 5500. Many of these responsibilities may be handled by the plan provider or a third-party administrator (TPA). Plan document: A document that describes a plan’s features and procedures. Specifically, this document identifies the type of plan, how it operates, and how it addresses the company’s unique needs and goals. Professional employer organization (PEO): A firm that provides small to medium-sized businesses with benefits-related and compliance-related services. Profit sharing: A type of defined contribution plan in which a plan sponsor contributes a portion of the company’s quarterly or annual profit to employee retirement accounts. This type of plan is often combined with an employer-sponsored retirement plan. Promissory note: A legal document that lays out the terms of a 401(k) loan or other financial obligation. Qualified non-elective contribution (QNEC): A contribution that a plan is required to make if it’s found to be top-heavy. Required minimum distribution (RMD): Refers to the requirement that an owner of a tax-deferred account begin making plan withdrawals each year starting at age 72. The first withdrawal must be made by April 1 of the year after the participant reaches age 72, and all subsequent annual withdrawals must be made by December 31. Rollover: A retirement account balance that is transferred directly from a previous employer’s qualified plan to the participant’s current plan. Consolidating accounts in this way can make it easier for a participant to manage and track retirement investments, and may also reduce retirement account fees. Roth 401(k) contributions: After-tax plan contributions that do not reduce taxable income. Contributions and their earnings are not taxed upon withdrawal as long as the participant is at least age 59½ and has owned the Roth 401(k) account for at least five years. For 2020, the limits on plan contributions (Traditional, Roth, or a combination of both) are $19,500 for individuals under age 50, and $26,000 for individuals age 50 and older (including $6,500 in catch-up contributions). Roth vs. pre-tax contributions: Pre-tax contributions reduce a participant’s current income, with taxes due when funds are withdrawn (typically in retirement). Alternatively, Roth contributions are deposited into the plan after taxes are deducted, so withdrawals are tax-free. Safe Harbor: A plan design option that provides annual testing exemptions. In exchange, employer contributions on behalf of all employees are required. Saver’s credit: A credit designed to help low- and moderate-income taxpayers further reduce their taxes by saving for retirement. The amount of this credit — 10%, 20%, or 50% of contributions, based on filing status and adjusted gross income — directly reduces the amount of tax owed. Stock option: The opportunity for an employee to purchase shares of an employer’s stock at a specific (often discounted) price for a limited time period. Some companies may offer a stock option as an alternative or a complement to a 401(k) plan. Summary Annual Report (SAR): A summary version of Form 5500, which a plan sponsor is required to provide to participants every year within two months after the Form 5500 deadline – September 30 or December 15 (if there was an extension given for Form 5500 filing). Summary Plan Description (SPD): A comprehensive document that describes in detail how a 401(k) plan works and the benefits it provides. Employers are required to provide an SPD to employees free of charge. Third-party administrator (TPA): An individual or company that may be hired by a 401(k) plan sponsor to help run many day-to-day aspects of a retirement plan. Among the responsibilities of a TPA are compliance testing, generation and maintenance of the plan document, and preparation of Form 5500. Traditional contributions: Pre-tax plan contributions that reduce taxable income. These contributions and their earnings are taxable upon withdrawal, which is typically during retirement.  Vesting: Another word for ownership. Participants are always fully vested in the contributions they make. Employer contributions, however, may be subject to a vesting schedule in which participant ownership builds gradually over several years.

Is Auto-Enroll Right for Your 401(k) Plan? Learn the ins and outs of this popular plan feature that streamlines the participant experience. “Maybe when I make more.” “Maybe when I pay off my student loans.” “Maybe when my horoscope tells me it’s time.” When it comes to employees enrolling in their 401(k)s, there’s always a reason why now isn’t the right time. But the fact is the best time to save for retirement is right now, while time and the power of compounding growth are on their side. That’s where 401(k) automatic enrollment—or ‘auto-enroll’ for short—comes in. It gives your employees the gentle nudge they might need to start saving for retirement. Before we dive into auto-enroll and whether it makes sense for your company, let’s take a moment to celebrate your journey toward finding the 401(k) plan that’s right for you! If you’re reading this article, you’ve reached one of the final key considerations of plan design. Another key consideration? That’s whether getting a pass on most compliance testing is worth the employer contribution requirements of a Safe Harbor 401(k) plan. If you go the Safe Harbor route, then your specific flavor of auto-enroll may be called a Qualified Automatic Contribution Arrangement (QACA). We’ll cover QACAs and the two other types of auto-enroll below. How 401(k) auto-enroll works As the name implies, automatic enrollment lets employers automatically deduct elective deferrals from employees’ wages. Simply put, it means your employees don’t have to lift a finger to start saving for retirement. Compare that to the typical enrollment process where employees must go online, make a phone call, or submit paperwork to access their retirement plan. All those little steps take real effort, and employees who are on the fence about enrolling might not be bothered to do it. Before they know it, years have passed, and they’ve missed out on valuable time in the market that they will never get back. Or you can do them a solid and make it all automatic. If you decide to add an automatic enrollment feature to your 401(k) plan, you must notify your employees at least 30 days in advance. After you do, they have three options: Opt out. Employees can opt out of 401(k) plan participation in advance. At Betterment at Work, by the way, we make it simple for employees to do this online. Customize their contribution amount or investments. Instead of enrolling with the default automatic enrollment elections, employees can stay enrolled but choose their own contribution rate. Do nothing for now and enjoy the ride. Here we see the beauty of automatic enrollment. Employees don’t have to do anything to start investing. Once the opt-out timeframe has elapsed, they’ll automatically begin deferring a certain percentage of their pay to their 401(k). Employees are typically informed each year that they can opt out from this enrollment. As you can imagine, option C is a popular choice. Among our clients who use auto-enroll, the employee participation rate is nearly 90 percent. The three types of automatic enrollment Before we go into each, a warning: we’re about to throw even more acronyms at you. If you’re allergic to alphabet soup, prepare accordingly! All three types of auto-enroll require that employees be enrolled at preset contribution rates and have the options to opt out or change their contribution rates. That’s effectively where a Basic Automatic Contribution Arrangement (ACA) begins and ends. Two other varieties add a few more wrinkles on top of that. With an Eligible Automatic Contribution Arrangement (EACA), employees can also request a refund of deferrals within the first 90 days. Employers come to a Qualified Automatic Contribution Arrangement (QACA) by way of a Safe Harbor 401(k) plan. That means they’ve already committed to, among other things, a specific threshold of employer contributions. Safe Harbor plans that include auto-enroll must also steadily increase their employees’ contribution rates each year in what’s often referred to as automatic escalation. We offer auto-escalation at no added expense for all new plans. Here’s how all this shakes out in grid form:   Basic Automatic Contribution Arrangement (ACA) Eligible Automatic Contribution Arrangement (EACA) Qualified Automatic Contribution Arrangement (QACA) Employees enrolled at preset contribution rates ✓ ✓ ✓ Employees can opt-out or change contribution rates ✓ ✓ ✓ Employees can request a refund of deferrals within first 90 days   ✓   Requires employer contributions (i.e. Safe Harbor)     ✓ Requires annual increase in employee contribution rate up to at least 6% (i.e. auto-escalation)     ✓ Auto-enrolled, but at how much? With auto-enroll plans, you pick your employees’ default contribution rate. This begs the question: how high should you set it? A default contribution rate of 3 percent used to be the most common, but that changed recently. According to The Plan Sponsor Council of America’s 64th Annual Survey, a 6 percent rate became the most popular in 2020. And if it helps any in your decision-making, our own data shows no evidence of higher default contribution rates leading to higher numbers of opt-outs. In addition to the default contribution rate, you’re also responsible for selecting the default investments for employees’ deferrals. This is what’s referred to as a Qualified Default Investment Alternative (QDIA)—and it can help limit your investment liability. Betterment at Work covers this base for all our 401(k) clients by defaulting employee deferrals into our Core portfolio, which meets QDIA criteria for transferability and safety. One potential downside of auto-enroll Making it easier for people to invest and save for retirement is a good thing. It’s sorta our thing. And if you have a Traditional 401(k) plan, an increased participation rate makes it more likely that your plan will pass the required compliance tests. However, there’s one downside to consider, and it’s mostly a matter of perspective. If you set your default contribution rate relatively low—let’s say less than 6 percent—and don’t actively encourage employees to bump that up as much as they can, they may not get on track to retire by their desired age. Is it better than saving nothing for retirement? Absolutely. But because employees didn’t actively choose the rate, they may not be inclined to increase it on their own. Wondering how to combat this retirement saving inertia? Well, it can be partially addressed by the aforementioned auto-escalation, which steadily increases employees’ contribution rates each year. We also help by offering your employees personalized retirement advice that helps keep them on track. How Betterment at Work makes ‘auto’ even easier As a digital 401(k) plan provider, we can help your employees save for their futures with compelling plan design features like auto-enroll. Our intuitive tech and committed service also lightens your administration load in the process. And let’s not forget about auto-escalation, which we offer at no added cost to new plans. Let us handle the work of monitoring who gets escalated. If your payroll provider is one we offer 360-degree integrations with, we'll even implement the increase ourselves. Last but certainly not least, we guide your employees through their contribution rates, investment options, and more. Even if your employees were auto-enrolled in the plan, they’ll get the encouragement they need to keep moving closer to retirement.

Understanding 401(k) Nondiscrimination Testing Discover what nondiscrimination testing is (and how to pass). If your company has a 401(k) plan—or if you’re considering starting one in the future—you’ve probably heard about nondiscrimination testing. But what is it really? And how do you help your plan pass these important compliance tests? Read on for answers to the most frequently asked questions about nondiscrimination testing. What is nondiscrimination testing? Mandated by ERISA, annual nondiscrimination tests help ensure that 401(k) plans benefit all employees—not just business owners or highly compensated employees (HCEs). Because the government provides significant tax benefits through 401(k) plans, it wants to ensure that these perks don’t disproportionately favor high earners. We’ll dive deeper into nondiscrimination testing, but let’s first discuss an important component of 401(k) compliance: contribution limits. What contribution limits do I need to know about? Because of the tax advantages afforded 401(k) plan contributions, the IRS puts a limit on the amount that employers and employees can contribute. Here’s a quick overview of the important limits: Limit What is it? Notes for 2022 plan year Employee contribution limits (“402g”) Limits the amount a participant may contribute to the 401(k) plan. The personal limit is based on the calendar year.1 Note that traditional (pre-tax) and Roth (post-tax) contributions are added together (there aren’t separate limits for each). $20,500 is the maximum amount participants may contribute to their 401(k) plan for 2022. Participants age 50 or older during the year may defer an additional $6,500 in “catch-up” contributions if permitted by the plan. Total contribution limit (“415”) Limits the total contributions allocated to an eligible participant for the year. This includes employee contributions, all employer contributions and forfeiture allocations. Total employee and employer contributions cannot exceed total employee compensation for the year. $61,0002 plus up to $6,500 in catch-up contributions (if permitted by the plan) for 2022. Cannot exceed total compensation. Employer contribution limit   Employers’ total contributions (excluding employee deferrals) may not exceed 25% of eligible compensation for the plan year. N/A   This limit is an IRS imposed limit based on the calendar year. Plans that use a ‘plan year’ not ending December 31st base their allocation limit on the year in which the plan year ends. This is different from the compensation limits, which are based on the start of the plan year. Adjusted annually; see most recent Cost of Living Adjustments table here. What is nondiscrimination testing designed to achieve? Essentially, nondiscrimination testing has three main goals:   To measure employee retirement plan participation levels to ensure that the plan isn’t “discriminating” against lower-income employees (NHCEs) or favoring HCEs.   To ensure that people of all income levels have equal access to—and awareness of—the company’s retirement plan.   To encourage employers to be good stewards of their employees’ futures by making any necessary adjustments to level the playing field (such as matching employees’ contributions) How do I classify my employees by income level? And what do all these acronyms really mean? Before you embark on nondiscrimination testing, you’ll need to categorize your employees by income level and employee status. Here are the main categories (and acronyms): Highly compensated employee (HCE)—According to the IRS, an employee who meets one or more of the following criteria: Prior (lookback) year compensation—For plan years ending in 2022, earned over $135,000 in the preceding plan year; some plans may limit this to the top 20% of earners (known as the top-paid group election); or Ownership in current or prior year—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation Non-highly compensated employee (NHCE)—Someone who does not meet the above criteria. Key employee—According to the IRS, an employee who meets one or more of the following criteria during the plan year: Ownership over 5%—Owns more than 5% of (1) outstanding corporate stock, (2) voting power across corporate stock, or (3) capital or profits of an entity not considered a corporation. Ownership over 1%—Owns more than 1% of the stock, voting power, capital, or profits, and earned more than $150,000. Officer—An officer of the employer who earned more than $185,000 for 2022; this may be limited to the lesser of 50 officers or the greater of 3 or 10% of the employee count. Non-key employee—Someone who does not meet the above criteria. What are the nondiscrimination tests that need to be performed? Below are the tests typically performed for 401(k) plans.  Betterment will perform each of these tests on behalf of your plan and inform you of the results. 1. 410(b) Coverage Tests—These tests determine the ratios of employees eligible for and benefitting from the plan to show that the plan fairly covers your employee base. Specifically, these tests review the ratio of HCEs benefitting from the plan against the ratio of NHCEs benefitting from the plan. Typically, the NHCE percentage benefitting must be at least 70% or 0.7 times the percentage of HCEs considered benefitting for the year, or further testing is required. These annual tests are performed across different contribution types: employee contributions, employer matching contributions, after-tax contributions, and non-elective (employer, non-matching) contributions. 2. Actual deferral percentage (ADP) test—Compares the average salary deferral of HCEs to that of non-highly compensated employees (NHCEs). This test includes pre-tax and Roth deferrals, but not catch-up contributions. Essentially, it measures the level of engagement of HCEs vs. NHCEs to make sure that high income earners aren’t saving at a significantly higher rate than the rest of the employee base. Specifically, two percentages are calculated: HCE ADP—The average deferral rate (ADR) for each HCE is calculated by dividing the employee’s elective deferrals by their salary. The HCE ADP is calculated by averaging the ADR for all eligible HCEs (even those who chose not to defer). NHCE ADP—The average deferral rate (ADR) for each NHCE is calculated by dividing the employee’s elective deferrals by their salary. The NHCE ADP is calculated by averaging the ADR for all eligible NHCEs (even those who chose not to defer). The following table shows how the IRS limits the disparity between HCE and NHCE average contribution rates. For example, if the NHCEs contributed 3%, the HCEs can only defer 5% (or less) on average. NHCE ADP   HCE ADP 2% or less → NHCE% x 2 2-8% → NHCE% + 2 more than 8% → NHCE% x 1.25   3. Actual contribution percentage (ACP) test—Compares the average employer contributions received by HCEs and NHCEs. (So this test is only required if you make employer contributions.) Conveniently, the calculations and breakdowns are the same as with the ADP test, but the average contribution rate calculation includes both employer matching contributions and after-tax contributions. 4. Top-heavy determination—Evaluates whether or not the total value of the plan accounts of “key employees” is more than 60% of the value of all plan assets. Simply put, it analyzes the accrued benefits between two groups: Key employees and non-Key employees. A plan is considered top-heavy when the total value (account balance with adjustments related to rollovers, terminated accounts, and a five-year lookback of distributions) of the Key employees’ plan accounts is greater than 60% of the total value (also adjusted as noted above) of the plan assets, as of the end of the prior plan year. (Exception: The first plan year is determined based on the last day of that year). If the plan is considered top-heavy for the year, employers must make a contribution to non-key employees. The top-heavy minimum contribution is the lesser of 3% of compensation or the highest percentage contributed for key employees. However, this can be reduced or avoided if no key employee makes or receives contributions for the year (including forfeiture allocations). What happens if my plan fails? If your plan fails the ADP and ACP tests, you’ll need to fix the imbalance by returning 401(k) plan contributions to your HCEs or by making additional employer contributions to your NHCEs. If you have to refund contributions, affected employees may fall behind on their retirement savings—and that money may be subject to state and federal taxes! If you don’t correct the issue in a timely manner, there could also be a 10% penalty fee and other serious ramifications. Why is it hard for 401(k) plans to pass nondiscrimination testing? It’s actually easier for large companies to pass the tests because they have many employees at varying income levels contributing to the plan. However, small and mid-sizes businesses may struggle to pass if they have a relatively high number of HCEs. If HCEs contribute a lot to the plan, but non-highly compensated employees (NHCEs) don’t, there’s a chance that the 401(k) plan will not pass nondiscrimination testing. How can I help my plan pass the tests? It pays to prepare for nondiscrimination testing. Here are a few tips that can make a difference: Make it easy to enroll in your plan—Is your 401(k) plan enrollment process confusing and cumbersome? If so, it might be stopping employees from enrolling. Consider partnering with a tech-savvy provider like Betterment that can help your employees enroll quickly and easily—and support them on every step of their retirement saving journey. Learn more now. Encourage your employees to save—Whether you send emails or host employee meetings, it’s important to get the word out about saving for retirement through the plan. That’s because the more NHCEs that participate, the better chance you have of passing the nondiscrimination tests. (Plus, you’re helping your staff prioritize their future.) Add automatic enrollment —By adding an auto-enrollment feature to your 401(k) plan, you can automatically deduct elective deferrals from your employees’ wages unless they elect not to contribute. It’s a simple way to boost participation rates and help your employees start saving. Add automatic escalation - By adding automatic escalation, you can ensure that participants who are automatically enrolled in the plan continue to increase their deferral rate by 1% annually until a cap is reached (generally 15%). It’s a great way to increase your employees retirement savings and to engage them in the plan. Add a safe harbor provision to your 401(k) plan—Avoid these time-consuming, headache-inducing compliance tests all together by electing a safe harbor 401(k) plan. What’s a safe harbor 401(k) plan? A safe harbor 401(k) plan is a defined contribution retirement plan that’s exempt from nondiscrimination testing. It’s like a typical 401(k) plan except it requires you to contribute to the plan on behalf of your employees, sometimes as an incentive for them to save in the plan. This mandatory employer contribution must vest immediately—rather than on a graded or cliff vesting schedule. This means your employees can take these contributions with them when they leave, no matter how long they’ve worked for the company. To fulfill safe harbor plan requirements, you can elect one of the following contribution formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation. Enhanced safe harbor match—Must be as generous as the basic safe harbor match, a common formula is when the employer matches 100% of employee contributions, up to 4% of their compensation. Non-elective contribution—Employer contributes a minimum of 3% of each employee’s compensation, regardless of whether they make their own contributions. These are only the minimum contributions. You can always increase non-elective or matching contributions to help your employees on the road to retirement. Interested in adding a safe harbor provision to your 401(k) plan? Find out more now. Did You Know? As a result of the SECURE Act, any 401(k) plan not utilizing a safe harbor match can be amended as late as 30 days before a plan year-end to provide the 3% safe harbor nonelective contribution for the plan year. Alternatively, the plan may amend up until the last day of the following plan year, provided they do a 4% safe harbor nonelective contribution. How can Betterment help? We know that nondiscrimination testing and many other aspects of 401(k) plan administration can be complicated. That’s why we do everything in our power to help make it easier for you as a plan sponsor. In fact, we help with year-end compliance testing, including ADP/ACP testing, top-heavy testing, annual additions testing, deferral limit testing, and coverage testing. With our intuitive online platform, you can better manage your plan and get the support you need along the way. Plus, you can have it all for a fraction of the cost of other 401(k) providers. Ready to learn more? Let's talk.  Any links provided to other websites are offered as a matter of convenience and are not intended to imply that Betterment or its authors endorse, sponsor, promote, and/or are affiliated with the owners of or participants in those sites, or endorses any information contained on those sites, unless expressly stated otherwise. The information contained in this article is meant to be informational only and does not constitute investment or tax advice.

Understanding your 401(k) Plan Document Betterment will draft your 401(k) plan document, but it’s important that you understand what it includes and that you follow it as written. What exactly is a Plan Document? A 401(k) plan is considered a qualified retirement plan by the Internal Revenue Service (IRS), and as such, must meet certain requirements to take advantage of significant tax benefits. Every 401(k) retirement plan is required to have a plan document that outlines how the plan is to be operated. The plan document should reflect your organization’s objectives in sponsoring the 401(k) plan, including information such as plan eligibility requirements, contribution formulas, vesting requirements, loan provisions, and distribution requirements. As regulations change or your organization changes plan features and/or rules, the plan document will need to be amended. Your provider will likely draft your plan’s document, but because of your fiduciary duty, it is important that you as plan sponsor review your plan document, understand it, and refer to it if questions arise. Whether you are a small business or a large corporation, failure to operate the plan in a manner consistent with the document as written can result in penalties from the IRS and/or the Department of Labor (DOL). Understanding Your Fiduciary Responsibilities Although any given 401(k) plan may have multiple (and multiple types of) fiduciaries based on specific plan functions, the plan document identifies the plan’s “Named Fiduciary” who holds the ultimate authority over the plan and is responsible for the plan’s operations, administration and investments. Typically the employer as plan sponsor is the Named Fiduciary. The employer is also the “plan administrator” with responsibility for overall plan governance. While certain fiduciary responsibilities may be delegated to third parties, fiduciary responsibility can never be fully eliminated or transferred. All fiduciaries are subject to the five cornerstone rules of ERISA (Employee Retirement Income Security Act) when managing the plan’s investments and making decisions regarding plan operations: Acting solely in the interest of plan participants and their beneficiaries and with the exclusive purpose of providing benefits to them; Carrying out their duties prudently; Following the plan documents (unless inconsistent with ERISA); Diversifying plan investments; and Paying only reasonable plan expenses. One of the best ways to demonstrate that you have fulfilled your fiduciary responsibilities is to document your decision-making processes. Many plan sponsors establish a formal 401(k) plan committee to help ensure that decisions are appropriately discussed and documented. Which Type of 401(k) Plan is Best for Your Organization? The plan document will identify the basic plan type: Traditional 401(k) plans provide maximum flexibility with respect to employer contributions and associated vesting schedules  (defining when those contributions become owned by the employee). However, these plans are subject to annual nondiscrimination testing to ensure that the plan benefits all employees—not just business owners or highly compensated employees (HCEs). Safe Harbor 401(k) plans are deemed to pass certain nondiscrimination tests but require employers to contribute to the plan on behalf of employees. This mandatory employer contribution must vest immediately—rather than on a graded or cliff vesting schedule. QACA Safe Harbor plans are an exception, which may have up to a two-year cliff vesting schedule. Profit-sharing 401(k) plans include an additional component that allows employers to make more significant contributions to their employee accounts. Besides helping to attract and retain talent, small businesses can find this feature especially helpful In highly profitable years, since it reduces taxable income. There is no one plan type that is better than another, but this flexibility allows you to determine which type makes the most sense for your organization. Eligibility Requirements to Meet Your Needs Although the IRS mandates that employees age 21 or older with at least 1 year of service are eligible  to make employee deferrals, employers do have considerable flexibility in setting 401(k) plan eligibility: Age -- employers often choose to adopt a minimum age of 18. Service -- employers can establish requirements on elapsed time or hours. Entry date -- employers may allow employees to participate in the plan immediately upon hiring but often require some waiting period. For example, employees may have to wait until the first of the month or quarter following their hire date. This flexibility allows employers to adopt eligibility requirements appropriate to their business needs. For instance, a company with high turnover or lots of seasonal workers may institute a waiting period to reduce the number of small balance accounts and the associated administrative costs. Automatic Enrollment may be the Way to Go Enrollment in a 401(k) plan can either be voluntary or automatic. As retirement savings has become ever more essential for workers, employers are increasingly choosing to adopt automatic enrollment, whereby a set percentage is automatically deferred from employee paychecks and contributed to the plan, unless an employee explicitly elects to “opt out” or not contribute. The benefit of automatic enrollment is that human inertia means most employees take no action and start saving for their future. As of September 2022, only 13% of participants who were auto-enrolled opted out per Betterment’s internal analysis.  Employee Contribution Flexibility Provides Valuable Flexibility The plan document will specify the types of contributions (or “elective deferrals”) that eligible employees can make to the plan via payroll deduction. Typically these will be either pre-tax contributions or Roth (made with after-tax dollars) contributions. Allowing plan participants to decide when to pay the taxes on their contributions can provide meaningful flexibility and tax diversification benefits. Elective deferrals are often expressed as either a flat dollar amount or as a percentage of compensation. Employee contribution limits are determined each year by the IRS. The plan document must specify whether the plan will allow catch-up contributions for those age 50 and older. Able and/or Willing to Contribute to Employee Accounts? The plan document will also include provisions regarding employer contributions, which can be made on either a matching or non-matching basis. Matching contributions are often used to incentivize employees to participate in the plan. For example, an employer may match 50% of every $1 an employee contributes, up to a maximum of 6% of compensation. For traditional 401(k) plans, matching contributions can be discretionary so that the employer can determine not only how much to contribute in any given year but whether or not to contribute at all. As stated above, matching employer contributions are required for Safe Harbor 401(k) plans. The plan document may also permit the employer to make contributions other than matching contributions. These so-called “nonelective” contributions would be made on behalf of all employees who are considered plan participants, regardless of whether they are actively contributing. Vesting Schedules and Employee Retention Vesting simply means ownership. Employees own, or are fully vested, in their own contributions at all times. Employers with traditional 401(k) plans, however, often impose a vesting schedule on company contributions to encourage employee retention. Although there are a wide variety of approaches to vesting, one of the most common is to use a graded vesting schedule. For instance, an employee would vest in the employer contribution at a rate of 25% each year and be 100% vested after 4 years. Employer contributions as part of Safe Harbor 401(k) plans are vested immediately, aside from QACA Safe Harbor plans. Let Betterment help you create a 401(k) that works for you and your employees As a full-service provider, Betterment aims to make life easy for you. We will draft your plan document based on your preferences and our industry expertise of best practices. We will work with you to keep your plan in compliance and can prepare amendments based on your changing needs. Sign up for a free demo to learn about the impact our 401(k) plan can have on your business.

Plan Design Matters Thoughtful 401(k) plan design can help motivate even reluctant retirement savers to start investing for their future. Designing a 401(k) plan is like building a house. It takes care, attention, and the help of a few skilled professionals to create a plan that works for both you and your employees. In fact, thoughtful plan design can help motivate even reluctant retirement savers to start investing for their future. How to tailor a 401(k) plan you and your employees will love As you embark on the 401(k) design process, there are many options to consider. In this article, we’ll take you through the most important choices so you can make well-informed decisions. Since certain choices may not be available on the various pricing models of any given provider, make sure you understand your options and the trade-offs you’re making. Let’s get started! 401(k) eligibility When would you like employees to be eligible to participate in the plan? You can opt to have employees become eligible: Immediately – as soon as they begin working for your company After a specific length of service – for example, a period of hours, months, or years of service It’s also customary to have an age requirement (for example, employees must be 18 years or older to participate in the plan). Plus, you may want to add an “employee class exclusion” to prevent part-time, seasonal, or temporary employees from participating in the plan. Once employees become eligible, they can immediately enroll – or, you can restrict enrollment to a monthly, quarterly, or semi-annual basis. If you have immediate 401(k) eligibility and enrollment, in theory, more employees could participate in the plan. However, if your company has a higher rate of turnover, you may want to consider adding service length requirements to alleviate the unnecessary administrative burden of having to maintain many small accounts of employees who are no longer with your organization. Enrollment Enrollment is another important feature to consider as you structure your plan. You may simply allow employees to enroll on their own, or you can add an automatic enrollment feature. Automatic enrollment (otherwise known as auto-enrollment) allows employers to automatically deduct elective deferrals from employees’ wages unless they elect not to contribute. With automatic enrollment, all employees are enrolled in the plan at a specific contribution rate when they become eligible to participate in the plan. Employees have the freedom to opt out and change their contribution rate and investments at any time. As you can imagine, automatic enrollment can have a significant impact on plan participation. In fact, according to research by The Pew Charitable Trusts, automatic enrollment 401(k) plans have participation rates greater than 90%! That’s in stark contrast to the roughly 50% participation rate for plans in which employees must actively opt in. If you decide to elect automatic enrollment, consider your default contribution rate carefully. A 3% default contribution rate is still the most popular; however, more employers are electing higher default rates because research shows that opt-out rates don’t appreciably change even if the default rate is increased. Many financial experts recommend a savings rate of at least 10%, so using a higher automatic enrollment default rate gets employees even more of a head start. Auto-escalation Auto-escalation is an important feature to look out for as you design your plan. It enables employees to increase their contribution rate over time as a way to increase their savings. With auto-escalation, eligible employees will automatically have their contribution rate increased by 1% every year until they reach a maximum cap of 15%. Employees can also choose to set their own contribution rate at any time, at which point they will no longer be enrolled in the auto-escalation feature. For example, if an employee is auto-enrolled at 6% with a 1% auto-escalation rate, and they choose to change their contribution rate to 8%, they will no longer be subject to the 1% increase every year. Compensation You’re permitted to exclude certain types of compensation for plan purposes, including compensation earned prior to plan entry and fringe benefits for purposes of compliance testing and allocating employer contributions. You may choose to define your compensation as: W2 (box 1 wages) plus deferrals – Total taxable wages, tips, prizes, and other compensation 3401(a) wages – All wages taken into account for federal tax withholding purposes, plus the required additions to W-2 wages listed above Section 415 Safe Harbor – All compensation received from the employer which is includible in gross income Employer contributions Want to encourage employees to enroll in the plan? Free money is a great place to start! That’s why more employers are offering profit sharing or matching contributions. In fact, EBRI and Greenwald & Associates’ found that nearly 73% of workers said they were likely to save for retirement if their contributions were matched by their employer. Some of the more common employer contributions are: Safe harbor contributions – With the added bonus of being able to avoid certain time-consuming compliance tests, safe harbor contributions often follow one of these formulas: Basic safe harbor match—Employer matches 100% of employee contributions, up to 3% of their compensation, plus 50% of the next 2% of their compensation. Enhanced safe harbor match—Employer matches 100% of employee contributions, up to 4% of their compensation.  Non-elective contribution—Employer contributes 3% of each employee’s compensation, regardless of whether they make their own contributions. Discretionary matching contributions – You decide what percentage of employee 401(k) deferrals to match and the maximum percentage of pay to match. For example, you could elect to match 50% of contributions on up to 6% of compensation. One advantage of having a discretionary matching contribution is that you retain the flexibility to adjust the matching rate as your business needs change. Non-elective contributions – Each pay period, you have the option of contributing to your employees’ 401(k) accounts, regardless of whether they contribute. For example, you could make a profit sharing contribution (one type of non-elective contribution) at the end of the year as a percentage of employees’ salaries or as a lump-sum amount. In addition to helping your employees build their retirement nest eggs, employer contributions are also tax deductible (up to 25% of total eligible compensation), so it may cost less than you think.  Plus, offering an employer contribution can play a key role in recruiting and retaining top employees. In fact, a Betterment for Business study found that more than 45% of respondents considered a 401(k) match to be a factor when deciding whether to accept a job. 401(k) vesting If you elect to make an employer contribution, you also need to decide on a vesting schedule (an employee’s own contributions are always 100% vested). Note that all employer contributions made as part of a safe harbor plan are immediately and 100% vested. The three main vesting schedules are: Immediate – Employees are immediately vested in (or own) 100% of employer contributions as soon as they receive them. Graded – Vesting takes place in a gradual manner. For example, a six-year graded schedule could have employees vest at a rate of 20% a year until they are fully vested. Cliff – The entire employer contribution becomes 100% vested all at once, after a specific period of time. For example, if you had a three-year cliff vesting schedule and an employee left after two years, they would not be able to take any of the employer contributions (only their own). Like your eligibility and enrollment decisions, vesting can also have an impact on employee participation. Immediate vesting may give employees an added incentive to participate in the plan. On the other hand, a longer vesting schedule could encourage employees to remain at your company for a longer time. Service counting method If you decide to use length of service to determine your eligibility and vesting schedules, you must also decide how to measure it. Typically, you may use: Elapsed time – Period of service as long as employee is employed at the end of period Actual hours – Actual hours worked. With this method, you’ll need to track and report employee hours Actual hours/equivalency – A formula that credits employees with set number of hours per pay period (for example, monthly = 190 hours) 401(k) withdrawals and loans Naturally, there will be times when your employees need to withdraw money from their retirement accounts. Your plan design will have rules outlining the withdrawal parameters for: Termination In-service withdrawals (at attainment of age 59 ½; rollovers at any time) Hardships Qualified Domestic Relations Orders (QDROs) Required Minimum Distributions (RMDs) Plus, you’ll have to decide whether to allow participants to take 401(k) plan loans (and the maximum amount of the loan). While loans have the potential to derail employees’ retirement dreams, having a loan provision means employees can access their money if they need it and employees can pay themselves back plus interest. If employees are reluctant to participate because they’re afraid their savings will be “locked up,” then a loan provision can help alleviate that fear. Investment options When it comes to investment methodology, there are many strategies to consider. Your plan provider can help guide you through the choices and associated fees. For example, at Betterment, we believe that ETFs offer investors significant diversification and flexibility at a low cost. Plus, we offer ETFs in conjunction with personalized, unbiased advice to help today’s retirement savers pursue their goals. Get help from the experts Your 401(k) plan provider can walk you through your plan design choices and help you tailor a plan that works for your company and your employees. Once you’ve settled on your plan design, you will need to codify those features in the form of a formal plan document to govern your 401(k) plan. At Betterment, we draft the plan document for you and provide it to you for review and final approval. Your business is likely to evolve—and your plan design can evolve, too. Drastic increase in profits? Consider adding an employer match or profit sharing contribution to share the wealth. Plan participation stagnating? Consider adding an automatic enrollment feature to get more employees involved. Employees concerned about access to their money in an uncertain world? Consider adding a 401(k) loan feature. Need a little help figuring out your plan design? Talk to Betterment. Our experts make it easy for you to offer your employees a better 401(k) quickly and easily—all for a fraction of the cost of most providers.