The simple 401(k) plan for small businesses
Our 401(k) plan solution makes plan design easier for you and retirement savings more accessible for your clients.
Simply Retirement by Principal® is a 401(k) plan solution that’s designed specifically for small businesses with fewer than 100 employees. This streamlined product includes the features your clients need without extra complexity they don’t. It’s a simple, cost-efficient option for business owners looking for an easy way to help their employees save for retirement.
Tax credits are available for small businesses just starting a new retirement plan.
SECURE 2.0 Act legislation could help offset some of your plan start-up costs.
The SECURE 2.0 Act allows small businesses with no more than 50 employees to claim a tax credit of 100% of the qualifying start-up costs for a new employee retirement plan (up to $5,000 per tax year for the first three years*). SECURE Act of 2019 allows a tax credit of 50% of the qualifying start-up costs for a new employee retirement plan for 3 years if the employer has 51-100 employees (maximum $5,000 a year).
There’s also an extra tax credit for 5 years of up to $1,000 per employee a year for employer contributions made if employers have no more than 50 employees. For employers with more than 51-100 employees, the credit is reduced by 2% for each employee in excess of 50. Under SECURE of 2019, an employer may also be eligible to claim up to $500 tax credit for including an eligible automatic contribution arrangement. Plus, matching contributions you make to employee retirement accounts as noted above can be tax-deductible. For example, a company with 25 employees can see the current plan start-up fee change from $2,200 per year to potentially offset the expenses by 100% with tax credits. See your tax advisor for guidance on how these credits may apply.
Simply Retirement by Principal® 401(k) plan features
Features for business owners
The Simply Retirement by Principal® 401(k) plan requires employees to be automatically enrolled at a default pre-tax contribution percentage set by the business owner. The default contribution rate must be at least 3%, but not more than 10%, plus an automatic contribution increase of 1% per year up to a maximum of at least 10%, but not more than 15%. Employees can change this amount or opt out at any time.
To be eligible, employees must be age 21 or older and meet the employment requirement you set. Whether it's their first day of work, after three months or work, or on their first employment anniversary. With the automatic enrollment feature, once eligible, employees will be automatically enrolled at the default pre-tax contribution percentage the business owner sets. They'll also have contributions directed to the plan's qualified default investment alternative (QDIA) unless they select otherwise. A QDIA is a default investment used when money is contributed to an employee's 401(k) account, and the employee hasn't made their investment selection.
Automatic enrollment can help increase participation, simplify administration, reduce follow-up, and help employees save for retirement. An eligible employer that adds an auto-enrollment feature to their plan can claim a tax credit of $500 per year for a 3-year taxable period beginning with the first taxable year the employer includes the auto-enrollment feature. This tax credit is available for new or existing plans that adopt an eligible auto-enrollment plan.
Profit-sharing flexibility. Business owners have the option to contribute company profits back to employees’ 401(k) plan accounts.
Payroll provider integrations. For the first three years, business owners can save time and reduce errors by automating contribution reporting from their payroll provider system directly into Simply Retirement by Principal®.
Protection through an ERISA fidelity bond. Business owners will get an ERISA fidelity bond to protect the plan's assets (up to $250,000 in assets, which equals a $25,000 bond). After three years, a renewal letter will be sent and the business owner can choose to accept the renewal at their own expense, or consult with their financial professional and/or TPA in choosing another bond provider.
Easy-to-use online platform for plan administration. Business owners will manage their plan using the intuitive Ubiquity Retirement + Savings® platform.
Automated signup and onboarding. Employees will receive an email from Ubiquity as soon as they’re eligible with instructions to set up a login to their plan account.
Recordkeeping. Services include tracking which employees are participating, the amount they’ve invested, and the amount invested in each of the plan funds.
Compliance testing. Ubiquity's team of compliance experts performs annual plan compliance nondiscrimination testing.
Filing and reporting. We help business owners stay on top of required documentation—like IRS Form 5500, plan document preparation and filing, participant disclosures, Qualified Default Investment Alternative (QDIA), and annual plan notifications.
Dedicated phone number. There's a team of people just a phone call away if you or your clients have a question.
Owner participation. This isn’t just a benefit for employees; qualifying business owners can also participate and maximize their retirement savings with any available matching contributions.
Features for participating employees
Preset investment options. Participants can pick from a carefully selected lineup of investment options. Wilshire Advisors LLC is the 3(38) plan fiduciary. See investments we offer.
Vesting schedule flexibility. Business owners can choose to have their employees 100% vested in the 401(k) plan immediately or on a 6-year graded vesting schedule.
Roth contributions. Participants can choose to make both pre-tax and Roth (after-tax) contributions to their 401(k) plan from their dashboard once they set up their online account. Auto-enrollment contributions are only pre-tax contributions.
Loans. Participants can request to take a loan from their 401(k) plan balance and select a loan repayment schedule that best suits them. Only one loan may be outstanding at a time. Loan repayments are made via after-tax payroll deductions. The interest portion of the loan payment is applied to the participant's account.
Rollovers. Participants can roll over eligible accounts into their 401(k) plan. (Rollover contributions can be distributed at any time.)
Financial wellness. Participants will have access to a comprehensive financial wellness platform that provides tools and resources to employees to better manage their current and future financial well-being.
Hardship withdrawals. Business owners can also choose to have the plan allow for hardship withdrawals.
Investments we offer
Wilshire Advisors LLC is the 3(38) investment fiduciary.
Wilshire Advisors LLC will provide objective, independent third-party oversight for the screening, selection, and monitoring of the investment options for Simply Retirement by Principal® and will have discretion for making changes when they deem appropriate. Wilshire Advisors LLC is a diversified global financial services firm with 40-plus years of experience providing investment guidance to some of the largest plan sponsors in the U.S. The firm’s core strength is in the use of market-tested manager research techniques that have been refined over four decades serving the institutional and pension consulting marketplace.
Financial professionals can select one of the available Wilshire 3(38) investment lineups for each plan. Participating employees have the option to choose their mix of investments from the preselected investment lineup.
Financial professional and third party administrator (TPA) compensation
When you create a proposal online, you'll be asked to set a billing preference for your compensation. You can bill your fee directly to your client, or you can choose to be compensated from plan assets.
Simply Retirement by Principal® offers investments made available through a group annuity contract. If you or your firm are compensated from plan assets, you can choose a flat fee (not to exceed 50bp annually), or 25, 50 or 75 basis points annually based on assets under management. Group annuity contracts are treated as an insurance product and require appropriate insurance licensing and/or security registration to receive compensation. Our credential validation process will determine if you meet the appropriate criteria. If additional information is required, we will work with you to ensure the appropriate requirements (differentiated by state) are met.
How does this 401(k) plan compare to other types of retirement plans?
When it comes to workplace retirement plans, we know a 401(k) plan isn’t your clients’ only option. Feel free to use this high-level comparison to walk them through their choices as you discuss what type of plan might best fit their needs.
401(k) plans allow employees to set aside a portion of their compensation and also allow business owners to make contributions to the employee’s retirement plan if they choose. Loans can be allowed, providing flexibility for employees. Normally, a 401(k) is designed to help employees save for their retirement where they won't pay taxes until they withdraw the money in retirement. Roth contributions, however, are another option that allows employees to pay taxes before contributing to their retirement so they don't have to pay taxes when they withdraw the money as long as distribution requirements are met.
A 403(b) plan is like a 401(k) plan; however, 403(b) plans are used by tax-exempt businesses, religious organizations, school districts, and governmental organizations. The law allows these organizations to be exempt from certain administrative processes that apply to 401(k) plans.
A Simplified Employee Pension (SEP) Individual Retirement Account (IRA) allows self-employed individuals or small business owners to save toward retirement. Business owners who have employees are required to contribute on the employee’s behalf.
A SIMPLE IRA (Savings Incentive Match Plan for Employees) is a simpler version of a 401(k) plan that works like a traditional IRA (Individual Retirement Account). Business owners are required to contribute to the plan, regardless of the employee participation and participant loans are not available. Roth contributions, however, are another option that allows employees to pay taxes before contributing to their retirement so they don't have to pay taxes when they withdraw the money.
A defined benefit (or pension) plan is a form of retirement plan in which the business owner sets aside money for their employee while they are working to provide them with guaranteed monthly income in retirement. Money will then be paid out to the employee, usually on a monthly basis, after they have retired. Employees cannot contribute additional money. A formula is used to determine how much the business owner will contribute to a pension plan.
A 403(b) plan is only available to:
- Employees of tax-exempt organizations established under section 501(c)(3)
- Employees of public school systems who are involved in the day-to-day operations of a school
- Employees of cooperative hospital service organizations
- Civilian faculty and staff of the Uniformed Services University of the Health Sciences
- Employees of public school systems organized by Indian tribal governments
- Certain ministers (see irs.gov for criteria)
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This allows employees to defer paying income taxes until they start to withdraw the money in retirement. This also lowers their taxable income for their current payroll.
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This allows employees to pay income taxes now and not when they start to withdraw the money in retirement as long as distribution requirements are met. This could be beneficial if your employee expects to have a higher monthly income during retirement.
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There is a minimum amount that your business would be required to contribute to your employees’ retirement.
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Safe harbor is just a type of 401(k) plan that allows you to bypass some of the compliance testing required by the IRS to make sure the plan is fair. In return, you’re required to help your employees save for retirement by making matching contributions to their 401(k) accounts. With safe harbor, you’ll contribute more money, but there’s less paperwork and administrative hassle. With a non-safe harbor plan, you have the option to contribute less, but you can’t bypass compliance testing required by the IRS. For more details, check out our safe harbor resource page.
*Eligible employees must be notified prior to plan start date.
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A loan provides the ability to withdraw funds from your retirement account early but it will need to be paid back based on plan terms. Money is taxed again when withdrawn in retirement, so those who take out a loan are subjecting themselves to double taxation.
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A hardship withdrawal is an emergency withdrawal of funds from a retirement plan due to what the IRS calls “an immediate and heavy financial need.” There are certain criteria for why the funds are needed and their amount in order to avoid penalty, but, even if penalties are waived, the withdrawal will still be subject to standard income tax.
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A vesting schedule is the time frame it takes for employees to own the assets that a business owner contributes to the employee's retirement plan. This is determined by the business owner and may be used as a retainment incentive.
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Automatic enrollment is a plan provision which automatically enrolls participants into the retirement plan at a specified pre-tax salary deferral percentage. This can help increase participation, simplify administration, and help employees save for retirement. Participants in the Simply Retirement by Principal® 401(k) plan are automatically enrolled, but can change their contribution details or opt out at any time.
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A rollover is when you transfer the money in your retirement account to a new plan or IRA. The IRS gives you 60 days from the date you receive an IRA or retirement plan distribution to roll it over to another plan or IRA. You’re allowed only one rollover per 12-month period from the same IRA. This one-rollover-per-IRA limit doesn’t apply to plan-to-plan rollovers and some other types of rollovers.
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Any acceptable investment under the plan
Any acceptable investment under the plan
Only mutual funds and annuities
Individual stocks, bonds, mutual funds, ETFs, and others
Individual stocks, bonds, mutual funds, ETFs, and others
Any acceptable investment under the plan
Please contact our financial professional support team at 800-952-3343 or [email protected] to discuss other retirement plan options.
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Intended for financial professional and TPA use.
If the client is working with a TPA, eligibility, automatic enrollment, and vesting options may vary.
*Up to $5,000 per tax year for the first three years: 1) $500 or (2) the lesser of (a) $250 for each non-highly compensated employee who is eligible to participate in the plan or (b) $5,000. Qualified startup costs (1) In general “qualified startup costs” is ordinary and necessary expenses of an eligible employer which are paid or incurred in connection with -- (i) the establishment or administration of an eligible employer plan, or (ii) the retirement-related education of employees with respect to such plan. (2) Plan must have at least 1 participant: would not apply if plan does not have at least 1 employee eligible to participate who is not a highly compensated employee. Information about the SECURE 2.0 Act is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
*Automatic enrollment: Automatic enrollment is a plan provision which automatically enrolls participants into the retirement plan at a specified pre-tax salary deferral percentage. This can help increase participation, simplify administration, and help employees save for retirement. Participants in the Simply Retirement by Principal® 401(k) plan are automatically enrolled, but can change their contribution details or opt out at any time. This credit is for plans that include the eligible automatic contribution arrangement (EACA) feature only.
*19,500: Up to $30,500 for employees age 50 or older. Amounts are for the 2024 tax year.
*19,500: Up to $30,500 for employees age 50 or older. Amounts are for the 2024 tax year.
*19,500: Up to $30,500 for employees age 50 or older. Amounts are for the 2024 tax year.
*13,500: Up to $19,500 for employees age 50 or older; can’t exceed 100% of compensation. Amount is for the 2024 tax year.
Start-up tax credit modification: Small employers with 50 or fewer employees may apply 100% of qualified start-up costs towards the tax credit formula (up to $5,000 per year).
New tax credit for start-up plans offering employer contributions: A tax credit equal to the applicable percentage of employer contributions, capped at a maximum of $1,000 per employee.
- Applicable to small employers with 50 or fewer employees.
- For employees with 51-100 employees: The credit is phased out by reducing the amount of credit each year 2% for each employee in excess of 50.
1st and 2nd year = 100%, 3rd year = 75%, 4th year = 50%, 5th year = 25%, 6th year = 0%
No contributions may be counted for employees with wages in excess of $100,000 (inflation adjusted). If taking advantage of this tax credit, employer contributions may not also be counted towards “start-up costs” in the start-up tax credit calculation.
*Eligible automatic contribution arrangement: The SECURE Act of 2019 provided an automatic enrollment one-time tax credit possible to be up to $500 per tax year for each year of the 3-taxable-year period beginning with the first taxable year for which the employer includes an eligible automatic contribution arrangement. This credit is for plans that include the eligible automatic contribution arrangement (EACA) feature only. Information about the SECURE Acts is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other financial professionals on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
