Starting a restaurant is costly. In worst cases, profits will only turn up after years of initial investments. This is why you, as a restaurant owner, should look for long-term solutions that will save you money in the long haul.
A great way to do this is to start a 401(k) Plan. Some surrounding myths might have made it look like it only benefits employees, but in this article, we’ll discuss how you can start a 401(k) plan for your restaurant, and how this will benefit you.
Benefits of a 401(k) Plan for Restaurant Owners
If you still don’t have a 401(k) plan for your business, chances are you’ve heard of things like a government takeover of 401k or that it’s too expensive or complex.
However, adding a 401(k) plan to your compensation scheme is an investment that will reap you the following benefits:
Hire Better Employees
Finding talented individuals to work for you is hard. But with a well-defined compensation package, your hiring poster will look much more appealing, especially if it includes a 401(k) plan.
Better workers look for better offers, after all. Wouldn’t you pick one with well-rounded benefits if you’re in their position?
Have a Higher Employee Retention Rate
A good 401(k) plan is among the most sought-after incentives by employees. In fact, a 2021 survey revealed that employees value 401(k) plans more than health insurance. This gives companies with 401(k) plans a better edge over those that haven’t.
Retirement plans as retention amplifiers are also particularly handy with chefs and other long-term administrators since institutional knowledge is crucial.
Be Eligible for Tax Breaks and Reductions
Because a restaurant business can take years to pay off, it’s a wise idea to save as much as you can. Fortunately, offering 401(k) for your employees makes you eligible for tax credits through the SECURE Act.
This law makes higher tax credits if you’re just starting your new 401(k) plan. You’ll find tax credits more helpful than exemptions and deductions since tax credits are deducted from the actual amount owed tax.
All in all, the SECURE Act gives you two types of tax credits that can take off up to $16,500 from your taxes over three years.
Saver’s Credit for Your Employees
Employees that fall under the lower end may also claim tax credits from their 401(k) contributions through saver’s credit.
Essentially, a saver’s credit is a nonrefundable tax credit that employees can get up to the first $2,000 of their voluntary contributions to your sponsored retirement plan.
Starting a 401(k) Plan
Now that you’re more acquainted with how a 401(k) plan will help your business, below are the steps you can take to start your restaurant’s 401(k) plan:
Conceptualize Your 401(K) Plan Document
Make a written plan outlining the details of your restaurant’s 401(k) plan. Make sure that it is compliant with the standards set by the IRS.
Include what type of plan you chose and crucial details on vesting guidelines, participation, and investment. Indicate as well the critical roles of your administrators.
Ensure that your employees and other participants receive the Summary Plan Description, a shortened version of your plan.
Hold Your Assets by Setting a Trust
Setting a trust ensures that the plan’s assets are used for the interest and benefit of the participants. Have one trustee oversee the plan’s activities on matters such as plan distribution and contribution.
Incorporate a Recordkeeping System
Maintaining accurate records to track the plan’s inflows and outflows is essential. This also tracks employee contributions to better prepare for legal documents that your state requires and the plan’s annual reports.
Keep the Plan’s Participants Informed
The law requires you to ensure that your employees (your plan’s participants) know about their 401(k) plan. Aside from the Summary Plan Description, you must also disseminate account statements and the Summary Annual Report.
Account statements are generally updates on investments, fees, features, expenses, performances, and changes to the plan.
Common 401(k) Plan Mistakes You Should Avoid
Not Appropriately Setting the Compensation Rate
Note that the plan’s salary deferrals depend on “eligible compensation.”Under the Employee Retirement Income Security Act of 1974 (ERISA), compensation categories can be fringe benefits such as phone plan, company car, and parking; regular compensation, such as salary and overtime pay; bonuses; and tips.
Not Informing Employees of Their 401(K) Plan’s Details
As stated, federal law requires employers to disclose information about the 401(k) plan to its participants. Employers are also required to provide eligible employees the option to participate, even for tipped employees.
As per ERISA, active participants must receive a Summary Plan Description, a list of any amendments, disclosure notices of annual fees, quarterly and yearly statements of plan activity, and notices for change in fees and investment options.
Start Your 401(k) Plan Now
Starting a 401(k) plan for your business is a great long-term solution to enhance your restaurant’s workforce. Not only will you ensure that their future lives are secured, but you will also do the same with your restaurant’s legacy.
This is a guest post by James Miller