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How Small Businesses Can Offer 401(k) Plans

Because 401(k) plans can help small businesses attract and retain the skilled employees key to fueling growth, adding financial planning services - specifically retirement planning - is a great place to start.

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As small businesses increasingly turn to their accountants for strategic counsel and offerings that will help drive growth, accountants can capitalize on new opportunities to expand their practice and enhance client service. According to research from The Sleeter Group, small business owners’ top criteria for selecting CPAs are expertise, responsiveness and offering proactive strategic advice. In addition, many small businesses want their accountant to be a specialist in their industry with a deep understanding of their specific business issues and challenges.

Because 401(k) plans can help small businesses attract and retain the skilled employees key to fueling growth, adding financial planning services – specifically retirement planning – is a great place to start. A recent study by ADP found that financial planning is offered at only 35 percent of accounting firms while just 20 percent provide wealth management. This presents accountants with a sizable opportunity to grow their business and deepen relationships with their small business clients by providing meaningful financial advice.

As a growing number of accountants consult with small business owners about establishing 401(k) plans, they should focus on several key considerations:

  • Determine the actual costs. While funding an employee retirement plan can seem like a daunting expense, small business owners who offer 401(k) plans can deduct contributions as a business expense. They may also be eligible to receive a tax credit of up to $500 to help offset startup administrative costs for each of the first three years of the plan. In addition, their employees will be able to save in a tax-deferred account while reducing their current taxable income based on their contributions.
  • Analyze the impact on employee engagement. 401(k) plans can help small businesses attract and retain top talent in an increasingly competitive labor market. A recent MetLife study found a strong connection between employee benefits and job satisfaction: 81 percent of those who are satisfied with their benefits, for example, are also satisfied with their jobs, compared to 22 percent who expressed dissatisfaction with their benefits but are satisfied with their jobs. A separate study by TowersWatson also revealed that benefits fuel employee loyalty: 45 percent of U.S. workers said their retirement plan is an important reason for staying with their current employer and 29 percent said having a retirement plan is an important reason for deciding to join their current employer.
  • Outline key planning and maintenance needs upfront. Help small business owners understand what is involved with offering a 401(k) plan to their employees and where they can turn for help with: adopting a written 401(k) plan document, arranging a trust for the plan’s assets, developing a record keeping system and providing plan information to eligible employees. Once a 401(k) is up and running, the focus needs to transition to plan management. This includes ongoing maintenance activities, such as monitoring participation and contributions, selecting and monitoring an investment lineup, handling reporting requirements, educating participants about plan options and determining how to distribute plan benefits while complying with fiduciary obligations.

With so much to juggle at once, small business owners may feel overwhelmed by the process. This is where accountants can step in and provide valuable strategic counsel. With their specialized financial skills and tax preparation expertise, accountants bring a deep understanding of the role retirement plans can play in lowering a small employer’s tax obligations. They can also help small business owners determine how to maximize savings, better understand their funding responsibilities and key deadlines for employer contributions, review participant contributions (maximum limit is $18,000 in 2016 and $24,000 for those 50 and older), and assess important administrative and reporting requirements.

Helping small businesses to establish and manage a retirement plan can be a smart long-term investment for both accountants and their clients. By demonstrating their financial and tax expertise, accountants will reinforce the value they bring to their clients and strengthen important relationships. With financial planning as a core business offering, accountants will also be able to attract new clients and broaden their customer base, taking their practice to new heights in 2016.


Joe DeSilva is General Manager and Senior Vice President of ADP Retirement Services, which serves approximately 55,000 small and medium sized businesses who have defined contribution plans with approximately 1.5 million plan participants.  At ADP, he oversees business strategy and operations including marketing, product development, operations and service functions. Prior to ADP, Joe worked for Mellon Financial and Pricewaterhouse Management Consultants. He received his bachelor’s degree in business administration from Monmouth University and completed his MBA from Seton Hall University.

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