Built for Small Business: Breaking Down Starter 401(k) Plans
Part of a series | SECURE 2.0 Act Insights
Beginning January 2025, small businesses can offer employees a streamlined 401(k) retirement plan option that's easier to manage and more cost-effective than traditional plans.
According to a recent ADP study, 60% of employees are substantially under-saving for their retirement needs.
While most small business owners understand the critical role retirement benefits play in their employees' financial futures and the overall health of their business, many are intimidated by the complex regulations, high costs and administrative demands of offering a plan.
Now there's a solution to help small businesses with 100 or fewer employees offer retirement savings benefits — a streamlined 401(k) option known as the Starter 401(k).
A Starter 401(k) plan gives small businesses the opportunity to provide game-changing retirement benefits with minimal administrative duties and lower costs compared to traditional plans. Employers that don't yet provide retirement benefits can enhance their compensation package, help attract top talent and boost employee retention with a qualified plan.
Retirement benefits, simplified
Starter 401(k) plans can help ease the challenges of offering a company-sponsored retirement plan, making it easier than ever to help more of today's workers build long-term financial security.
Automatic features
The Starter 401(k) features automatic enrollment, where employees are defaulted into the plan at a contribution rate between 3% and 15% as determined by the employer.
Clear contribution structure
While annual contribution limits are lower than traditional 401(k) plans, Starter 401(k) plans offer a $6,000 annual limit, plus valuable catch-up contributions for those 50+.
Streamlined testing requirements
With a Starter 401(k) plan, there's no annual nondiscrimination requirement to maintain legal compliance.
Lower cost and less paperwork
Plans generally require minimal ongoing documentation and annual notices, saving time and reducing administrative fees. There are also no required employer contributions, helping to keep costs down.
Tax savings
Under SECURE 2.0, employers with fewer than 100 employees are eligible for a three-year, start-up tax credit of up to $5,000 to offset startup costs of a new plan, including a Starter 401(k).
A sound choice for small employers
As the workforce continues to prioritize retirement benefits, the question isn't whether to offer a 401(k), but rather, can a small business afford not to? A Starter 401(k) plan could be the solution that small business owners have been waiting for.
To learn more about ADP Starter-k Complete, contact an ADP retirement planning services specialist to discuss your retirement plan options or call (800) 432-401K.
ADP, Inc., and its affiliates do not offer investment, tax, or legal advice to individuals. Nothing contained in this article is intended to be, nor should be construed as, particularized advice or a recommendation or suggestion that you take or not take a particular action. Questions about how laws, regulations, guidance, your plan's provisions, or services available to participants may apply to you should be directed to your plan administrator or legal, tax or financial advisor.
