Small business’ role in children’s health insurance

What role do small business owners have in providing health coverage for children of employees?

This question is increasingly significant as the federal government stalls and is apparently unwilling to issue funding for ‘CHIP’ programs for moderate income families that have historically been supported by the majority of lawmakers. Recent news reports indicate that the Senate is unlikely to approve the funding so states and employee benefits advisers like us are beginning to investigate alternatives. This article is meant to provide a preliminary checklist.

  1. Small businesses are not required to provide health insurance to employees.
  2. Businesses that do provide health insurance to employees are not required to provide it (or even make it available) to employees’ children.
  3. Businesses that do provide employee health coverage typically cover children on the same plan and under the same terms as the employees.
  4. Until 2010, the United States was making strong positive progress in providing health coverage to low income children. I covered this topic here in 2011. Most of these initiatives were replaced by the Affordable Care Act (ACA).
  5. The implementation of the ACA dominated coverage from 2012 until this year, 2017. This federal law treated all low income people equally (although coverage varied depending on state and local markets).
  6. The rollback of funding for ACA is the primary factor affecting children’s health insurance for lower income families in 2018.
  7. The cost of children’s health insurance is less than the cost of adult coverage
  8. In many cases small businesses are wise, considering all the options and current laws, to provide supplemental health coverage and avoid providing primary health coverage to employees and their dependents.
  9. Employee health plans can be modified to provide relief for employees’ children in the event of a cancellation of CHIP programs without disturbing other employer policies that are currently in force.

This blog post offers generalized comments for public presentation. Discussion is not customized for each state’s laws. Some of these points may not apply to your firm. Please seek individual guidance that applies to your firm and your state’s laws.

Concerns of small businesses in response to the president’s executive order on health care

On October 12, 2017 the president issued an executive order that directed federal government agencies to explore ways to loosen niche types of health insurance. My annotated copy of the execuive order is posted on my web site at

The executive order does not address these immediate concern to small businesses and individuals:

1) Indicate any change in state insurance regulations that prohibit the use of short term medical or limited benefit insurance plans within its borders. This is of special importance in states with the most restrictive and most expensive insurance.

2) Predict how state insurance regulators will react to the sale of already approved limited benefit or short term medical insurance across state borders to residents within its jurisdiction.

3) Indicate how state insurance prohibiting the use of association insurance plans will be affected or persuaded to ease in conjunction with this executive order.

Freedom Benefits is working with insurance companies, business associations and individual business clients to address these issues and close the gap in knowledge where specific health plan solutions are needed. We are especially focused on solutions for New Jersey small businesses since this state has the most restrictive insurance laws in the nation in this market niche.

Freedom Benefits acts as an adviser but not an insurance company, agent, broker, insurance exchange, association health plan or other entity affected by the executive order. We may be paid paid to perform support functions for any of these entities.

Profiting from the new Trump administration health plan rules

New opportunities for small business planning

(This post is speculative based on an announcement that is expected in the near future. The content is therefore valid only if regulations are changed as predicted).

Later this week the Trump administration is expected to roll back  range of restrictive regulations on health insurance that will open the door to new opportunities for saving. These are actuarial principles that Freedom Benefits has endorsed since the 1980s.

The core concept is shockingly refreshing: small businesses should focus on serving the immediate needs of their most productive workers.  The new regulations allow and even encourage small business employers from trying to solve all of our ailing health car system’s woes. That means giving up and releasing outlier health care risks. It means analyzing and addressing the core medical needs of your small group of employees.

The new plans will make broad use of short term medical insurance for new or transient employees who do not have pre-existing medical conditions. This one change can save an average of half of the insurance cost compared to Obamacare era health plans.

Small businesses will again be attracted to limited benefit mini-med insurance that focus on the “sweet spot” of medical costs incurred by the majority of employees. The most important difference is that they eliminate the deductibles that employees hate. These plans are priced at least 15% lower than traditional major medical plans but have some glaring holes in coverage, like prescription drugs, that some people have come to expect. Fortunately today’s flexible small business health plans like those offered by Freedom Benefits allow individual employees can weigh the pros and cons on an individual basis.

High tech, construction and agricultural businesses that traditionally rely on temporary international workers will save money by using insurance that is specifically designed for inbound immigrants.

Most importantly, employers will be empowered to design health benefits that are independent of insurance companies. Health Reimbursement Arrangements, Health Savings Accounts and Flexible Spending Accounts will play a larger role for employers who want to take control and directly address employees’ health care concerns. Freedom Benefits offerers these customized plans on an affordable basis that fit the budget of small business employers.


Three approaches to 2017 health insurance rate increases

Small business facing steep health insurance rate increases for 2017 health insurance may take one of three possible approaches to the problem:
1. Some will drop the group coverage and send employees to the exchange. Some employers will increase employee pay to compensate for the change. A few will attempt to reimburse employees for insurance at significant risk of IRS penalties.
2. Some will switch to a bronze insurance plan with a Health Savings Account. This generally saves some money and increases the overall benefit payout ratio of the health plan.
3. Firms with more than 20 employees may consider using a type of self-insurance with hybrid insurance plans. It is impossible to know whether this will save money until after all the employee claims are processed for the year.

With rate increases threatening to be more than 20% in some states, I doubt that many firms will renew existing insurance coverage without changes.

When to avoid small business group health insurance

Employer-based group health plans are usually the preferred method of delivery of health care financing because of current laws and market efficiencies. But there are cases where individual insurance is a better option.

Employer-based employee benefit plans are usually preferred way to provide health insurance and supplemental health benefits to employees. In an ideal setting, group health insurance allows for the highest quality coverage to be made available at a competitive price through a combination of employer contributions and voluntary employee salary reductions. The use of common employee benefit plans makes the health plan a pre-tax benefit which significantly reduces the net cost.

However, there are exceptions. Certain work environments do not provide a suitable setting for employer-based insurance. The following list provides examples of situations where group health plans will not work. In those cases individual insurance exchange is a better option.

1. There is a high level of tension or distrust between the employer and employees. Certain industries are notorious for unsuccessful employee benefit plans and, unfortunately, that problematic climate is likely beyond our immediate control.

2. The employer does not offer or contribute to at least a basic health insurance plan. Most group health insurance companies require that the employer pay a portion of the cost in order to financially stabilize the insurance policy and deter adverse selection.

3. Payroll deduction accounting is not available. While we are able to help with the set up qualified benefits under any payroll system, the fact is that some employers do not use a payroll accounting system and other that do use a payroll system do not maintain a good working relationship with the service provider.

4. The employer is unwilling to pay the cost of setting up a pre-tax qualified plan to reduce benefit costs for the employees. The initial start-up cost is typically $300 at Freedom Benefits and similar additional expenses recur each year.

5. Management does not understand the benefit plans and does not take the time to learn how they work. An effective benefit plan relies on endorsement and a mentorship type environment within the workplace.

6. The workplace does not allow time and place for employees to learn about benefits. This is the underlying reason that group health plans do not succeed in some industries.

When one or more of these conditions are present, a group health plan will not likely be successful. In those cases the employer should focus on steering employees to a health insurance exchange and may want to consider paying for health benefits through the regular paycheck.

An employer may wish to consider any of the voluntary benefit programs offered by Freedom Benefits that combine individually selected health insurance with the tax advantages of group health plans.


Three simple steps to improve 401(k) results

Are you concerned about the fees in your 401(k) plan? How do you get the best value for your money and is your 401(k) on target to deliver the benefits you expect?

401(k) plan participants are expected to pay much more attention to the fees and performance of their retirement accounts after August 2012 when new federal regulations require additional disclosures to all 401(k) plan participants. We believe that the only logical approach to improve 401(k) plan results is through independent advice – separate from the firms that provide retirement plan and investment services. A simple three step analysis, review and planning exercise will address these concerns and put your retirement plan back on the right track.

Ask questions

The Department of Labor prepared this ten point checklist to help 401(k) plan participants gain an understanding of these fees and potential areas for improvement:

  1. What investment options are offered under your company’s 401(k) plan?
  2. Do you have all available documentation about the investment choices under your plan and the fees charged to your plan?
  3. What types of investment education are available under your plan?
  4. What arrangement is used to provide services under your plan (i.e., are any or all of the services or investment alternatives provided by a single provider)?
  5. Do you and other participants use most or all of the optional services offered under your 401(k) plan, such as a participant loan program and insurance coverage?
  6. If administrative services are paid separately from investment management fees, are they paid for by the plan, your employer or are they shared?
  7. Are the investment options tracking an established market index or is there a higher level of investment management services being provided?
  8. Do any of the investment options under your plan include sales charges (such as loads or commissions)?
  9. Do any of the investment options under your plan include any fees related to specific investments, such as 12b-1 fees, insurance charges, or surrender fees, and what do they cover?
  10. Does your plan offer any special funds or special classes of stock (generally sold to larger group investors)?

Get independent advice

Plan participants should have access to independent 401(k) plan advice (an adviser not affiliated with the company that provides services to the 401(k) plan or its investments). An independent adviser typically compares the fees and services of your plan in comparison to similar fees and services on comparable plans in order to arrive at any  recommendations designed to lower fees and boost performance for the participants. More importantly, an independent adviser helps plan participants focus on a “big picture” assessment of whether the current accounts are on target to meet the participant’s overall expectations of a secure retirement.

Measure your progress

It is important to periodically re-evaluate your retirement planning in light of overall life changes. Freedom Benefits offers individual consultations to delve into these issues in more detail. A simple but highly effective interactive software program called “Taking the mystery out of retirement planning” is incorporated into our one-on-one discussions and group workshops for 401(k) plan participants. This “mini-planning” process takes only about an hour but delivers big results.

By taking these three simple steps:

  1. question 401(k) fees and performance
  2. access an independent advisor
  3. participate in a retirement planning evaluation

it is possible to significantly improve performance and satisfaction with you 401(k) plan.

Tax changes triggered by federal health reform

How the 2010 federal health reform laws changed the taxation of health benefits, health insurance and related benefit plans

Health care reform legislation passed in 2010 added new taxes and changed other aspect of tax law. This article summarizes the federal tax-related items from the health care reform legislation. Note that not all of the tax changes relate directly to health insurance or health benefits but were still included as part of the 2010 health reform laws. This article does not address state tax changes that followed as a result of the federal law.

Tax changes effective in 2010

Sec. 40 – Change to cellulosic biofuel producer credit

Excludes fuels that are more than 4% (determined by weight) water and sediment in any combination or have an ash content of more than 1% from the definition of cellulosic biofuel.

Sec. 45R – Small business tax credit

Small businesses with 25 or fewer employees and average annual wages of $50,000 or less would be eligible for a credit of up to 50% of nonelective contributions the business makes on behalf of their employees for health insurance.

Sec. 105(b) – Excluding from income amounts received under a health insurance plan

The definition of “dependent” now includes any child of the taxpayer who has not yet reached age 27.

Sec. 162(l)(1) Self-employed health insurance deduction

The definition of “dependent” now includes any child of the taxpayer who has not yet reached age 27.

Sec. 401(h) Benefits for retirees

The definition of “dependent” now includes any child of the taxpayer who has not yet reached age 27.

Sec. 501(c)(9) Benefits provided to members of a VEBA

The definition of “dependent” now includes any child of the taxpayer who has not yet reached age 27.

Secs. 501(r) – Charitable hospitals

New requirements for hospitals operating under Sec. 501(c)(3), also affects Section 6033(b)(15).

Sec. 5000B – Tax on indoor tanning services

A new 10% tax on amounts paid for indoor tanning services.

Sec. 6103 – Return information disclosure

Allows the IRS to disclose certain taxpayer return information if the taxpayer’s income is relevant in determining the amount of the tax credit or cost-sharing reduction, or eligibility for participation in the specified state health subsidy programs.

Sec. 7701(o) – Codification of the economic-substance doctrine

Creates the economic-substance doctrine under the law and makes underpayments due to transactions that do not have economic substance subject to the Sec. 6662 accuracy-related penalty.

Adoption credit and credit for adoption-assistance programs

Maximum adoption credit was increased and, for adoption-assistance programs, the maximum exclusion was increased. Expired at end of 2012.

Tax changes effective in 2011

Sec. 125 – SIMPLE cafeteria plans for small business

An eligible small employer is provided with a safe harbor from the nondiscrimination requirements for cafeteria plans as well as from the nondiscrimination requirements for specified qualified benefits offered under a cafeteria plan.

Sec. 223 – Tax on health savings account (HSA) distributions

The tax on distributions from an HSA or an Archer medical savings account (MSA) that are not used for qualified medical expenses is increased to 20% of the disbursed amount.

Sec. 223 – Restrictions on use of HSA and FSA Funds

Amounts paid for over-the-counter medications will no longer be reimbursable from HSAs, Archer MSAs, health FSAs, or health reimbursement arrangements.

Annual fee on pharmaceutical manufacturers and importers

Fee on each covered entity engaged in the business of manufacturing or importing branded prescription drugs for sale to any specified government program or pursuant to coverage under any such program.

Tax changes effective in 2012

Sec. 501(c)(3) – Community health needs assessment

New requirements applicable to hospitals, regarding conducting a community health needs assessment, adopting a written financial-assistance policy, limitations on charges, and collection activities. Also affects Section 6033(b)(15).

Sec. 4375 – Fees on health plans

A fee is imposed on each specified health insurance policy.

Sec. 6051(a)(14) – Information reporting

Employers must disclose the value of the employee’s health insurance coverage sponsored by the employer on each employee’s annual Form W-2. The effective date was later delayed until 2013 for most employers.

Tax changes effective in 2013

Sec. 139A – Deductions for federal subsidies for retiree prescription plans

Eliminates the rule that the exclusion for subsidy payments is not taken into account for purposes of determining whether a deduction is allowable for retiree prescription drug expenses.

Sec. 125(i) – Health flexible spending arrangements (FSAs)

The maximum amount available for reimbursement of incurred medical expenses under a health FSA for a plan year can not exceed $2,500.

Sec. 213 – Medical care itemized deduction threshold

Threshold for the itemized deduction for unreimbursed medical expenses is increased from 7.5% of adjusted gross income (AGI) to 10% of AGI for regular income tax purposes. This change is delayed until 2017 for certain taxpayers.

Sec. 1411 – Medicare tax on investment income

Imposes a tax on individuals equal to 3.8% of the lesser of the individual’s net investment income for the year or the amount the individual’s modified AGI exceeds a threshold amount.

Sec. 3101 – Additional hospital insurance tax on high-income taxpayers

Employee portion of the Medicare hospital insurance tax part of FICA is increased by 0.9% on wages that exceed a threshold amount.

Sec. 4191 – Excise tax on medical device manufacturers

A tax equal to 2.3% of the sale price is imposed on the sale of any taxable medical device by the manufacturer, producer, or importer of the device.

Tax changes effective in 2014

Time for payment of corporate estimated taxes for 2014

Corporations with assets of at least $1 billion,had estimated tax payments due in July, August, or September 2014 increased.

Expanded 1099 reporting

This change was repealed by the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011, P.L. 112-9.

Sec. 36B – Premium-assistance credit

Refundable tax credits that eligible taxpayers can use to help cover the cost of health insurance premiums for individuals and families who purchase health insurance through a state health benefit exchange.

Sec. 125 – Cafeteria plans

A qualified health plan offered through a health insurance exchange is a qualified benefit under a cafeteria plan of a qualified employer.

Sec. 4980H – Employer responsibility for insurance

An applicable large employer that does not offer coverage for all its full-time employees, offers minimum essential coverage that is unaffordable, or offers minimum essential coverage that consists of a plan under which the plan’s share of the total allowed cost of benefits is less than 60%, is required to pay a penalty if any full-time employee is certified to the employer as having purchased health insurance through a state exchange with respect to which a tax credit or cost-sharing reduction is allowed or paid to the employee.

Sec. 6055 – Reporting requirements

Requires insurers and employers who self-insure that provide minimum essential coverage to employees to report certain health insurance coverage information to both the covered individual and to the IRS.

Tax changes effective in 2018

Sec. 4980I – Excise tax on high-cost employer plans

The “Cadillac tax” is an excise tax on coverage providers if the aggregate value of employer-sponsored health insurance coverage for an employee (including, for purposes of the provision, any former employee, surviving spouse, and any other primary insured individual) exceeds a threshold amount.

Other resources:

Taxation of amounts received through health plans (2012)


Tax free treatment of amounts received through health plans

The tax treatment of amounts received through accident and health plans is governed by Section 105 of the Internal Revenue Code. The treatment is relatively simple; the only common difficulty comes from the distinctions in treatment between insured and uninsured health plans. The tax code is reproduced below.

There is a minor typographical error in this section of the tax code. The text in (h)(7)(b) is missing a closing parentheses,

26 USC § 105 – Amounts received under accident and health plans

(a) Amounts attributable to employer contributions
Except as otherwise provided in this section, amounts received by an employee through accident or health insurance for personal injuries or sickness shall be included in gross income to the extent such amounts
(1) are attributable to contributions by the employer which were not includible in the gross income of the employee, or
(2) are paid by the employer.
(b) Amounts expended for medical care
Except in the case of amounts attributable to (and not in excess of) deductions allowed under section 213 (relating to medical, etc., expenses) for any prior taxable year, gross income does not include amounts referred to in subsection (a) if such amounts are paid, directly or indirectly, to the taxpayer to reimburse the taxpayer for expenses incurred by him for the medical care (as defined in section 213(d)) of the taxpayer, his spouse, his dependents (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), and any child (as defined in section 152(f)(1)) of the taxpayer who as of the end of the taxable year has not attained age 27. Any child to whom section 152(e) applies shall be treated as a dependent of both parents for purposes of this subsection.
(c) Payments unrelated to absence from work
Gross income does not include amounts referred to in subsection (a) to the extent such amounts—
(1)constitute payment for the permanent loss or loss of use of a member or function of the body, or the permanent disfigurement, of the taxpayer, his spouse, or a dependent (as defined in section 152, determined without regard to subsections (b)(1), (b)(2), and (d)(1)(B) thereof), and
(2)are computed with reference to the nature of the injury without regard to the period the employee is absent from work.
[(d) Repealed. Pub. L. 98–21, title I, § 122(b),Apr. 20, 1983, 97 Stat. 87]
(e) Accident and health plans
For purposes of this section and section 104—
(1)amounts received under an accident or health plan for employees, and
(2)amounts received from a sickness and disability fund for employees maintained under the law of a State or the District of Columbia,
shall be treated as amounts received through accident or health insurance.
(f) Rules for application of section 213
For purposes of section 213(a) (relating to medical, dental, etc., expenses) amounts excluded from gross income under subsection (c) or (d) shall not be considered as compensation (by insurance or otherwise) for expenses paid for medical care.
(g) Self-employed individual not considered an employee
For purposes of this section, the term “employee” does not include an individual who is an employee within the meaning of section 401(c)(1) (relating to self-employed individuals).
(h) Amount paid to highly compensated individuals under a discriminatory self-insured medical expense reimbursement plan
(1) In general
In the case of amounts paid to a highly compensated individual under a self-insured medical reimbursement plan which does not satisfy the requirements of paragraph (2) for a plan year, subsection (b) shall not apply to such amounts to the extent they constitute an excess reimbursement of such highly compensated individual.
(2) Prohibition of discrimination
A self-insured medical reimbursement plan satisfies the requirements of this paragraph only if—
(A)the plan does not discriminate in favor of highly compensated individuals as to eligibility to participate; and
(B)the benefits provided under the plan do not discriminate in favor of participants who are highly compensated individuals.
(3) Nondiscriminatory eligibility classifications
(A) In general
A self-insured medical reimbursement plan does not satisfy the requirements of subparagraph (A) of paragraph (2) unless such plan benefits—
(i)70 percent or more of all employees, or 80 percent or more of all the employees who are eligible to benefit under the plan if 70 percent or more of all employees are eligible to benefit under the plan; or
(ii)such employees as qualify under a classification set up by the employer and found by the Secretary not to be discriminatory in favor of highly compensated individuals.
(B) Exclusion of certain employees
For purposes of subparagraph (A), there may be excluded from consideration—
(i)employees who have not completed 3 years of service;
(ii)employees who have not attained age 25;
(iii)part-time or seasonal employees;
(iv)employees not included in the plan who are included in a unit of employees covered by an agreement between employee representatives and one or more employers which the Secretary finds to be a collective bargaining agreement, if accident and health benefits were the subject of good faith bargaining between such employee representatives and such employer or employers; and
(v)employees who are nonresident aliens and who receive no earned income (within the meaning of section 911(d)(2)) from the employer which constitutes income from sources within the United States (within the meaning of section 861(a)(3)).
(4) Nondiscriminatory benefits
A self-insured medical reimbursement plan does not meet the requirements of subparagraph (B) of paragraph (2) unless all benefits provided for participants who are highly compensated individuals are provided for all other participants.
(5) Highly compensated individual defined
For purposes of this subsection, the term “highly compensated individual” means an individual who is—
(A)one of the 5 highest paid officers,
(B)a shareholder who owns (with the application of section 318) more than 10 percent in value of the stock of the employer, or
(C)among the highest paid 25 percent of all employees (other than employees described in paragraph (3)(B) who are not participants).
(6) Self-insured medical reimbursement plan
The term “self-insured medical reimbursement plan” means a plan of an employer to reimburse employees for expenses referred to in subsection (b) for which reimbursement is not provided under a policy of accident and health insurance.
(7) Excess reimbursement of highly compensated individual
For purposes of this section, the excess reimbursement of a highly compensated individual which is attributable to a self-insured medical reimbursement plan is—
(A)in the case of a benefit available to highly compensated individuals but not to all other participants (or which otherwise fails to satisfy the requirements of paragraph (2)(B)), the amount reimbursed under the plan to the employee with respect to such benefit, and
(B)in the case of benefits (other than benefits described in subparagraph (A) paid to a highly compensated individual by a plan which fails to satisfy the requirements of paragraph (2), the total amount reimbursed to the highly compensated individual for the plan year multiplied by a fraction—
(i)the numerator of which is the total amount reimbursed to all participants who are highly compensated individuals under the plan for the plan year, and
(ii)the denominator of which is the total amount reimbursed to all employees under the plan for such plan year.
In determining the fraction under subparagraph (B), there shall not be taken into account any reimbursement which is attributable to a benefit described in subparagraph (A).
(8) Certain controlled groups, etc.
All employees who are treated as employed by a single employer under subsection (b), (c), or (m) of section 414 shall be treated as employed by a single employer for purposes of this section.
(9) Regulations
The Secretary shall prescribe such regulations as may be necessary to carry out the provisions of this section.
(10) Time of inclusion
Any amount paid for a plan year that is included in income by reason of this subsection shall be treated as received or accrued in the taxable year of the participant in which the plan year ends.
(i) Sick pay under Railroad Unemployment Insurance Act
Notwithstanding any other provision of law, gross income includes benefits paid under section 2(a) of the Railroad Unemployment Insurance Act for days of sickness; except to the extent such sickness (as determined in accordance with standards prescribed by the Railroad Retirement Board) is the result of on-the-job injury.
(j) Special rule for certain governmental plans
(1) In general
For purposes of subsection (b), amounts paid (directly or indirectly) to the taxpayer from an accident or health plan described in paragraph (2) shall not fail to be excluded from gross income solely because such plan, on or before January 1, 2008, provides for reimbursements of health care expenses of a deceased plan participant’s beneficiary.
(2) Plan described
An accident or health plan is described in this paragraph if such plan is funded by a medical trust that is established in connection with a public retirement system and that—
(A)has been authorized by a State legislature, or
(B)has received a favorable ruling from the Internal Revenue Service that the trust’s income is not includible in gross income under section 115.

Other resources:

Tax changes triggered by federal health reform law


A summary of tax issues related to employer-provided health benefits

Taxation of employer-provided health benefits is often a misunderstood topic especially in the years after implementation of the Affordable Care Act market reform provisions. Yet the fundamental tax treatment of health plans and health benefits has not changed in decades.

Four key factual issues now control the tax treatment of employer-provided health benefits under U.S. law:

  1. Whether the health benefit was provided through insurance or outside of insurance,
  2. If provided through insurance, whether the insurance was ACA compliant, exempted, or non-compliant,
  3. Whether the employer’s health plan meets legal requirements. (I used to write “whether an employer plan exists” but now presume that all employer-provided health benefits are part of a “plan” for tax purposes,
  4. Whether the benefit involved employee contributions as a salary reduction.

There are different components of tax law to consider that affect employer-provided health benefits including:

  1. Deductibility of the expense by the employer under IRC Section 162 (ordinary business expenses). Almost all employee health plan expenses do qualify as an ordinary tax-deductible business expense for the employer.
  2. Taxability of benefits to the employee, as determined by IRC Section 3121 (definition of wages). In the past almost all employer-provided health benefits were received tax-free by the employee but this is no longer presumed to be the case following implementation of the Affordable Care Act.
  3. Excise taxes imposed on non-compliant employer health plans under IRC Section 4980D. This is the new ‘hot issue’ for employers in 2014 following implementation of the Affordable Care Act. Many employer health plans are subject to a new 10% excise penalty, a few will be subject to much higher penalty amounts.
  4. Taxation for FICA and FUTA and state income taxes. This tax treatment may be different than the tax treatment for federal income taxes.

There are many resources available for tax advisers and business owners. A few are listed here:

IRS – Publication 15-B

IRS – Employer Health Care Arrangements

Freedom Benefits – Small business health plan compliance checklist 

Novak, Tony – Taxation of health insurance

Novak. Tony – 18 Things Small Businesses Must Know About Health Reimbursement Arrangements (HRAs)


Planning a small business 401(k)

The majority of content on this Web page was originally produced by IRS and the U.S. Department of Labor in December 2011 and is edited and adapted here as part of Freedom Benefits financial education and consulting programs. 


  1. Why 401(k) plans?
  2. Establishing a 401(k)
  3. Automatic enrollment
  4. Arrange a trust fund
  5. Develop a recordkeeping system
  6. Provide plan information to employees
  7. Operating a 401(k)
  8. Participation
  9. Contributions
  10. Vesting
  11. Nondiscrimination
  12. Investing
  13. Fiduciary responsibilities
  14. Disclosing plan information to employees
  15. Reporting to government agencies
  16. Terminating a 401(k) plan
  17. Compliance
  18. 401(k) plan checklist
  19. Resources

WHY 401(k) PLANS?

401(k) plans can be a powerful tool in promoting financial security in retirement. They are a valuable option for businesses considering a retirement plan, providing benefits to employees and their employers.

Employers start a 401(k) plan for a host of reasons:

  • A well-designed 401(k) plan can help attract and keep talented employees.
  • It allows participants to decide how much to contribute to their accounts.
  • Employers are entitled to a tax deduction for contributions to employees’ accounts.
  • A 401(k) plan benefits a mix of rank-and file employees and owners/managers.
  • The money contributed may grow through investments in stocks, bonds, mutual funds, money market funds, savings accounts, and other investment vehicles.
  • Contributions and earnings generally are not taxed by the Federal Government or by most State governments until they are distributed.
  • A 401(k) plan may allow participants to take their benefits with them when they leave the company, easing administrative responsibilities.

This booklet highlights some of a 401(k) plan’s advantages, some of your options and responsibilities as an employer operating a 401(k) plan, and the differences among the types of 401(k) plans. For more information, a list of resources for you and for 401(k) plan participants is included at the end of this booklet.


When you establish a 401(k) plan, you must take certain basic actions. One of your first decisions will be whether to set up the plan yourself or to consult a professional or financial institution — such as a bank, mutual fund provider, or insurance company — to help with establishing and maintaining the plan. In addition, there are four initial steps for setting up a 401(k) plan:

  • Adopt a written plan document,
  • Arrange a trust fund for the plan’s assets,
  • Develop a recordkeeping system, and
  • Provide plan information to employees eligible to participate.

Adopt a written plan document — Plans begin with a written document that serves as the foundation for day-to-day plan operations. If you have hired someone to help with your plan, that person likely will provide the document. If not, consider obtaining assistance from a financial institution or retirement plan professional. In either case, you will be bound by the terms of the plan document.

Once you have decided on a 401(k) plan, you will need to choose the type of 401(k) plan that is best for you — a traditional 401(k) plan, a safe harbor 401(k) plan, or an automatic enrollment 401(k) plan. In all of these plans, participants can make contributions through salary deductions.

A traditional 401(k) plan offers the maximum flexibility among the three types of plans. Employers have discretion over whether to make contributions for all participants, to match employees’ deferrals, to do both, or to do neither. These contributions can be subject to a vesting schedule (which provides that an employee’s right to employer contributions becomes nonforfeitable only after a period of time). Annual testing ensures that benefits for rank-and-file employees are proportional to benefits for owners/managers.

There are several kinds of 401(k) plans that aren’t subject to the annual contributions testing required with traditional 401(k) plans. These are known as safe harbor 401(k) plans and, in exchange for avoiding the annual testing, employees in these plans must receive a certain level of employer contributions. Under the most popular safe harbor 401(k) plan (discussed in this publication), mandatory employer contributions must be fully vested when made.

An automatic enrollment 401(k) plan allows you to automatically enroll employees and place deductions from their salaries in certain default investments, unless the employee elects otherwise. This is an effective way for many employers to increase participation in their 401(k) plans.

The traditional, safe harbor, and automatic enrollment plans are for employers of any size.

This booklet addresses traditional and safe harbor 401(k) plans. For more information on automatic enrollment 401(k) plans, see

Automatic Enrollment 401(k) Plans for Small Businesses

Once you have decided on the type of plan for your company, you will have flexibility in choosing some of the plan’s features — such as which employees can contribute to the plan and how much. Other features written into the plan are required by law. For instance, the plan document must describe how certain key functions are carried out, such as how contributions are deposited in the plan. See IRS Publication 4674 for more information.

Arrange a trust fund for the plan’s assets

A plan’s assets must be held in trust to assure that assets are used solely to benefit the participants and their beneficiaries. The trust must have at least one trustee to handle contributions, plan investments, and distributions. Since the financial integrity of the plan depends on the trustee, selecting a trustee is one of the most important decisions you will make in establishing a 401(k) plan. If you set up your plan through insurance contracts, the contracts do not need to be held in trust.

Develop a recordkeeping system

An accurate recordkeeping system will track and properly attribute contributions, earnings and losses, plan investments, expenses, and benefit distributions. If a contract administrator or financial institution assists in managing the plan, that entity typically will help keep the required records. In addition, a recordkeeping system will help you, your plan administrator, or financial provider prepare the plan’s annual return/report that must be filed with the Federal Government.

Provide plan information to employees eligible to participate

You must notify employees who are eligible to participate in the plan about certain benefits, rights, and features. In addition, a summary plan description (SPD) must be provided to all participants. The SPD is the primary vehicle to inform participants and beneficiaries about the plan and how it operates. The SPD typically is created with the plan document. (For more information on the required contents of the SPD, see Disclosing Plan Information to Participants.)

You also may want to provide your employees with information that discusses the advantages of your 401(k) plan. The benefits to employees — such as pretax contributions to a 401(k) plan (or tax-free distributions in the case of Roth contributions), employer contributions (if you choose to make them), and compounded tax-deferred earnings — help highlight the advantages of participating in the plan.


Once you have established a 401(k) plan, you assume certain responsibilities in operating the plan. If you hired someone to help in setting up your plan, that arrangement also may have included help in operating the plan. If not, another important decision will be whether to manage the plan yourself or to hire a professional or financial institution — such as a bank, mutual fund provider, or insurance company — to take care of some or most aspects of operating the plan.

Elements of operating 401(k) plans include the following:

  • Participation
  • Contributions
  • Vesting
  • Nondiscrimination
  • Investing 401(k) plan monies
  • Fiduciary responsibilities
  • Disclosing plan information to participants
  • Reporting to government agencies
  • Distributing plan benefits


Typically, a plan includes a mix of rank and-file employees and owners/managers. However, some employees may be excluded from a 401(k) plan if they:

  • Have not attained age 21;
  • Have not completed a year of service; or
  • Are covered by a collective bargaining agreement that does not provide for participation in the plan, if retirement benefits were the subject of good faith bargaining.

Employees cannot be excluded from a plan merely because they are older workers.


In all 401(k) plans, participants can make contributions through salary deductions. You can decide on your business’s contribution to participants’ accounts in the plan.

Contributions in a traditional 401(k) Plan

If you decide to contribute to your 401(k) plan, you have further options. You can contribute a percentage of each employee’s compensation for allocation to the employee’s account (called a nonelective contribution), or you can match the amount your employees decide to contribute, or you can do both (within the limits of the tax law).

For example, you may decide to add a percentage — say, 50 percent — to an employee’s contribution, which results in a 50-cent increase for every dollar the employee sets aside. Using a matching contribution formula will provide employer contributions only to employees who make deferrals to the 401(k) plan. If you choose to make nonelective contributions, the employer contribution goes to each eligible participant, whether or not the participant decides to make a salary deferral to his or her 401(k) plan account.

Under a traditional 401(k) plan, you have the flexibility of changing the amount of employer contributions each year, according to business conditions.

Contributions in a Safe Harbor 401(k) Plan

Under a safe harbor plan, you can match each eligible employee’s contribution, dollar for dollar, up to 3 percent of the employee’s compensation, and 50 cents on the dollar for the employee’s contribution that exceeds 3 percent, but not 5 percent, of the employee’s compensation. Alternatively, you can make a nonelective contribution equal to 3 percent of compensation to each eligible employee’s account. Each year you must make either the matching contributions or the nonelective contributions. The plan document will specify which contributions will be made and this information must be provided to employees before the beginning of each year.

Contributions in a Roth 401(k)

401(k) plans may permit employees to make after-tax contributions through salary deduction. These designated Roth contributions, as well as gains and losses, are accounted for separately from pretax contributions. However, designated Roth contributions are treated the same as pretax contributions for most aspects of plan operations, such as contribution limits.

A 401(k) plan may allow participants to transfer certain amounts in the plan to their designated Roth account in the plan.

Contribution Limits

Employer and employee contributions and forfeitures (nonvested employer contributions of terminated participants) are subject to a per-employee overall annual limitation. This limit is the lesser of:

  • 100 percent of the employee’s compensation, or
  • $49,000 for 2011 and $50,000 for 2012.

In addition, the amount employees can contribute under any 401(k) plan is limited to $16,500 for 2011 and $17,000 for 2012.

All 401(k) plans may allow catch-up contributions of $5,500 for 2011 and 2012 for employees age 50 and over.


Employee salary deferrals are immediately 100 percent vested — that is, the money that an employee has contributed to the plan cannot be forfeited. When an employee leaves employment, he or she is entitled to those deferrals, plus any investment gains (or minus losses) on his or her deferrals.

In safe harbor 401(k) plans, all required employer contributions are always 100 percent vested. In traditional 401(k) plans, you can design your plan so that employer contributions become vested over time, according to a vesting schedule.


To preserve the tax benefits of a 401(k) plan, the plan must provide substantive benefits for rank-and-file employees, not just business owners and managers. These requirements are called nondiscrimination rules and compare both plan participation and contributions of rank-and-file employees to those of owners/ managers.

Traditional 401(k) plans are subject to annual testing to assure that the amount of contributions made for rank-and-file employees is proportional to contributions made for owners and managers. In most cases, safe harbor 401(k) plans are not subject to annual nondiscrimination testing.

Investing 401(k) Plan Monies

After you decide on the type of 401(k) plan, you can consider the variety of investment options. One decision you will need to make in designing a plan is whether to permit your employees to direct the investment of their accounts or to manage the monies on their behalf. If you choose the former, you also need to decide what investment options to make available to the participants. Depending on the plan design you choose, you may want to hire someone either to determine the investment options to make available or to manage the plan’s investments. Continually monitoring the investment options ensures that your selections remain in the best interests of your plan and its participants.

Fiduciary Responsibilities

Many of the actions needed to operate a 401(k) plan involve fiduciary decisions. This is true whether or not you hire someone to manage the plan for you or do some or all of the plan management yourself. Controlling the assets of the plan or using discretion in administering and managing the plan makes you and the entity you hire a plan fiduciary to the extent of that discretion or control. Hiring someone to perform fiduciary functions is itself a fiduciary act. Thus, fiduciary status is based on the functions performed for the plan, not a title.

Some decisions with respect to a plan are business decisions, rather than fiduciary decisions. For instance, the decisions to establish a plan, to include certain features in a plan, to amend a plan, and to terminate a plan are business decisions. When making these decisions, you are acting on behalf of your business, not the plan, and therefore, you would not be a fiduciary. However, when you take steps to implement these decisions, you (or those you hire) are acting on behalf of the plan and thus, in making decisions, may be acting as fiduciaries.

Basic Responsibilities

Those persons or entities that are fiduciaries are in a position of trust with respect to the participants and beneficiaries in the plan. The fiduciary’s responsibilities include:

  • Acting solely in the interest of the participants and their beneficiaries;
  • Acting for the exclusive purpose of providing benefits to workers participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;
  • Carrying out duties with the care, skill, prudence, and diligence of a prudent person familiar with such matters;
  • Following the plan documents; and
  • Diversifying plan investments.

These are the responsibilities that fiduciaries need to keep in mind as they carry out their duties. The responsibility to be prudent covers a wide range of functions needed to operate a plan. And, since all these functions must be carried out in the same manner as a prudent person would, it may be in your best interest to consult experts in various fields, such as investments and accounting.

In addition, for some functions, there are specific rules that help guide the fiduciary. For example, the deductions from employees’ paychecks for contribution to the plan must be deposited with the plan as soon as reasonably possible, but no later than the 15th business day of the month following the payday. If you can reasonably make the deposits in a shorter time frame, you need to make the deposits at that time.

For plans with fewer than 100 participants, salary reduction contributions deposited with the plan no later than the 7th business day following withholding by the employer will be considered contributed in compliance with the law.

For all contributions, employee and employer (if any), the plan must designate a fiduciary, typically the trustee, to make sure that contributions due to the plan are transmitted. If the plan and other documents are silent or ambiguous, the trustee generally has this responsibility. As part of following the plan documents in operating your plan, the plan document will need to be updated from time to time for changes in the law.

Limiting Liability

With these responsibilities, there is also some potential liability. However, there are actions you can take to demonstrate that you carried out your responsibilities properly as well as ways to limit your liability.

The fiduciary responsibilities cover the process used to carry out the plan functions rather than simply the end results. For example, if you or someone you hire makes the investment decisions for the plan, an investment does not have to be a “winner” if it was part of a prudent overall diversified investment portfolio for the plan. Since a fiduciary needs to carry out activities through a prudent process, you should document the decision-making process to demonstrate the rationale behind the decision at the time it was made.

In addition to the steps above, there are other ways to limit potential liability. The plan can be set up to give participants control of the investments in their accounts. For participants to have control, they must have sufficient information on the specifics of their investment options. If properly executed, this type of plan limits your liability for the investment decisions made by participants. You can also hire a service provider or providers to handle some or most of the fiduciary functions, setting up the agreement so that the person or entity then assumes liability.

Hiring a Service Provider

Even if you do hire a financial institution or retirement plan professional to manage the whole plan, you retain some fiduciary responsibility for the decision to select and keep that person or entity as the plan’s service provider. Thus, you should document your selection process and monitor the services provided to determine if a change needs to be made.

For a service contract or arrangement to be reasonable, service providers must provide certain information to you about the services they will provide to your plan and all of the compensation they will receive. This information will assist you in understanding the services, assessing the reasonableness of the compensation (direct and indirect), and determining any conflicts of interest that may impact the service provider’s performance.

Some additional items to consider in selecting a plan service provider:

Information about the firm itself: affiliations, financial condition, experience with 401(k) plans, and assets under their control;

  • A description of business practices: how plan assets will be invested if the firm will manage plan investments or how participant investment directions will be handled; and
  • Information about the quality of prospective providers: the identity, experience, and qualifications of the professionals who will be handling the plan’s account; any recent litigation or enforcement action that has been taken against the firm; the firm’s experience or performance record; if the firm plans to work with any of its affiliates in handling the plan’s account; and whether the firm has fiduciary liability insurance.
  • Once hired, these are additional actions to take when monitoring a service provider:
  • Evaluate any notices received from the service provider about possible changes to their compensation and the other information they provided when hired (or when the contract or arrangement was renewed);
  • Review the service provider’s performance;
  • Read any reports they provide;
  • Check actual fees charged;
  • Ask about policies and practices (such as trading, investment turnover, and proxy voting); and
  • Follow up on participant complaints.

(For more information, see Understanding Retirement Plan Fees and Expenses at www. Click on “Fiduciary Education” under “Compliance Assistance” to access the publication.)

Providing Information in Participant-Directed Plans

When plans allow participants to direct their investments, fiduciaries need to take steps to regularly make participants aware of their rights and responsibilities under the plan related to directing their investments. This includes providing plan and investment-related information, including information about fees and expenses, that participants need to make informed decisions about the management of their individual accounts. Participants must receive the information before they can first direct their investment in the plan and annually thereafter. The investment-related information needs to be presented in a format, such as a chart, that allows for a comparison among the plan’s investment options. A model chart is available on ebsa. If you use information provided by a service provider that you rely on reasonably and in good faith, you will be protected from liability for the completeness and accuracy of the information.

Prohibited Transactions and Exemptions

There are certain transactions that are prohibited under the law to prevent dealings with parties that have certain connections to the plan, self-dealing, or conflicts of interest that could harm the plan. However, there are a number of exceptions under the law, and additional exemptions may be granted by the U.S. Department of Labor, where protections for the plan are in place in conducting the transactions.

One exemption allows the provision of investment advice to participants who direct the investments in their accounts. This applies to the buying, selling, or holding of an investment related to the advice as well as to the receipt of related fees and other compensation by a fiduciary adviser.

Another exemption in the law permits you to offer loans to participants through your plan. If you do, the loan program must be carried out in such a way that the plan and all other participants are protected. Thus, the decision with respect to each loan request is treated as a plan investment and considered accordingly.


Persons handling plan funds or other plan property generally must be covered by a fidelity bond to protect the plan against loss resulting from fraud and dishonesty by those covered by the bond.

Disclosing Plan Information to Participants

Plan disclosure documents keep participants informed about the basics of plan operation, alert them to changes in the plan’s structure and operations, and provide them a chance to make decisions and take timely action with respect to their accounts.

The summary plan description (SPD) — the basic descriptive document — is a plain-language explanation of the plan and must be comprehensive enough to apprise participants of their rights and responsibilities under the plan. It also informs participants about the plan features and what to expect of the plan.

Among other things, the SPD must include information about:

  • When and how employees become eligible to participate in the 401(k) plan;
  • The contributions to the plan;
  • How long it takes to become vested;
  • When employees are eligible to receive their benefits;
  • How to file a claim for those benefits; and
  • Basic rights and responsibilities participants have under the Federal retirement law, the Employee Retirement Income Security Act (ERISA).

The SPD should include an explanation about the administrative expenses that will be paid by the plan. This document must be given to participants when they join the plan and to beneficiaries when they first receive benefits. SPDs must also be redistributed periodically during the life of the plan.

A summary of material modification (SMM) apprises participants of changes made to the plan or to the information required to be in the SPD. The SMM or an updated SPD must be automatically furnished to participants within a specified number of days after the change.

An individual benefit statement (IBS) shows the total plan benefits earned by a participant, vested benefits, the value of each investment in the account, information describing the ability to direct investments, and (for plans with participant direction) an explanation of the importance of a diversified portfolio. Plans that provide for participant-directed accounts must furnish individual account statements on a quarterly basis. Plans that do not provide for participant direction must furnish statements annually.

As noted above, for plans that allow participants to direct the investments in their accounts, plan and investment information, including information about fees and expenses, must be provided to participants before they can first direct investments and periodically thereafter – primarily on an annual basis with information on the fees and expenses actually paid provided at least quarterly. The initial plan-related information may be distributed as part of the SPD provided when a participant joins the plan as long as it is provided before the participant can first direct investments. The information provided quarterly may be included with the IBS.

A summary annual report (SAR) is a narrative of the plan’s annual return/ report, the Form 5500, filed with the Federal Government (see Reporting to Government Agencies for more information). It must be furnished annually to participants.

A blackout period notice gives employees advance notice when a blackout period occurs, typically when plans change record-keepers or investment options, or when plans add participants due to corporate mergers or acquisitions. During a blackout period, participants’ rights to direct investments, take loans, or obtain distributions are suspended.

Reporting to Government Agencies

In addition to the disclosure documents that provide information to participants, plans must also report certain information to government entities.

Form 5500 Annual Return/Report of Employee Benefit Plans

Plans are required to file an annual return/ report with the Federal Government, in which information about the plan and its operation is disclosed to the IRS and the U.S. Department of Labor. Plans that must file the Form 5500 must do so electronically. These returns/reports are made available to the public.

Depending on the number and type of participants covered, most 401(k) plans must file one of the following forms:

  • Form 5500, Annual Return/Report of Employee Benefit Plan,
  • Form 5500-SF, Short Form Annual Return/Report of Small Employee Benefit Plan, or
  • Form 5500-EZ, Annual Return of One-Participant (Owners and Their Spouses) Retirement Plan.

Most one-participant plans (sole proprietor/ spouse and certain partnership plans) with total assets of $250,000 or less are exempt from the annual filing requirement. However, regardless of the value of the plan’s assets, a final return/report must be filed when a plan is terminated.

Form 1099-R

Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. is given to both the IRS and recipients of distributions from the plan during the year. It is used to report distributions (including rollovers) from a retirement plan.

Distributing Plan Benefits

Benefits in a 401(k) plan are dependent on a participant’s account balance at the time of distribution.

When participants are eligible to receive a distribution, they typically can elect to:

  • Take a lump sum distribution of their account,
  • Roll over their account to an IRA or another employer’s retirement plan, or
  • Purchase an annuity.


401(k) plans must be established with the intention of being continued indefinitely. However, business needs may require that employers terminate their 401(k) plans. For example, you may want to establish another type of retirement plan in lieu of the 401(k) plan.

Typically, the process of terminating a 401(k) plan includes amending the plan document, distributing all assets, and filing a final Form 5500. You must also notify your employees that the 401(k) plan will be discontinued. Check with your plan’s financial institution or a retirement plan professional to see what further action is necessary to terminate your 401(k) plan.


Even with the best intentions, mistakes in plan operation can still happen. The U.S. Department of Labor and IRS have correction programs to help 401(k) plan sponsors correct plan errors, protect participants, and keep the plan’s tax benefits. These programs are structured to encourage early correction of the errors. Having an ongoing review program makes it easier to spot and correct mistakes in plan operations. See the Resources section for further information.


1. Have you determined which type of 401(k) plan best suits your business?

2. Have you decided to hire a financial

institution or retirement plan professional to help with setting up and running the plan?

3. Have you decided whether to make contributions to the plan, and, if so, whether to make nonelective and/or matching contributions? (Remember, you may design your plan so that you may change your contributions if necessary due to business conditions.)

4. Have you adopted a written plan that includes the features you want to offer, such as whether participants will direct the investment of their accounts?

5. Have you notified eligible employees and provided them with information to help in their decision making?

6. Have you arranged a trust fund for the plan assets or will you set up the plan solely with insurance contracts?

7. Have you developed a recordkeeping system?

8. Are you familiar with the fiduciary responsibilities?

9. Are you prepared to monitor the plan’s service providers?

10. Are you familiar with the reporting and disclosure requirements of a 401(k) plan?

For help in establishing and operating a 401(k) plan, you may want to talk to a retirement plan professional or a representative of a financial institution offering retirement plans—and take advantage of the help available in the following Resources section. Freedom offers a free consultation to discuss small business 401(k) planning. Call Tony Novak at (800) 609-0683.


The U.S. Department of Labor’s (DOL’s) Employee Benefits Security Administration and the IRS feature this booklet and additional information on retirement plans on their websites: — Go to “Compliance Assistance for Small Employers” or “Publications and Reports” for additional information to help you understand and operate your 401(k) plan. This website also has information to help your employees understand the importance of saving for retirement through an employer-sponsored plan. — Go to “Plan Sponsor/Employer.” This website is filled with plain-language information that will help you maintain your 401(k) plan properly. All the IRS forms and publications mentioned in this booklet are available here.

In addition, the following jointly developed publications are available on the DOL and IRS websites and can be ordered through the toll-free numbers listed below:

Choosing a Retirement Solution for Your Small Business, Publication 3998, provides an overview of retirement plans available to small businesses.

Adding Automatic Enrollment to Your 401(k) Plan, Publication 4721, explains how to add automatic enrollment to your existing 401(k) plan.

Automatic Enrollment 401(k) Plans for Small Businesses, Publication 4674, explains a type of retirement plan that allows small businesses to increase plan participation.

Payroll Deduction IRAs for Small Businesses,

Publication 4587, describes an arrangement that is an easy way for businesses to give employees an opportunity to save for retirement.

Profit Sharing Plans for Small Businesses,

Publication 4806, describes a flexible way for businesses to help employees save for retirement.

SEP Retirement Plans for Small Businesses, Publication 4333, describes a low-cost retirement savings option for small businesses.

SIMPLE IRA Plans for Small Businesses, Publication 4334, describes a type of retirement plan designed especially for small businesses.

And for business owners with a plan:

Retirement Plan Correction Programs, Publication 4224, provides a brief description of the IRS and DOL voluntary correction programs.

Order From:

DOL: Electronically at or by calling 866-444-3272 IRS: 800-TAX-FORM (829-3676)

Related materials available from DOL:

For small businesses:

Understanding Retirement Plan Fees and Expenses

Meeting Your Fiduciary Responsibilities

Selecting an Auditor for Your Employee Benefit Plan

Reporting and Disclosure Guide for Employee Benefit Plans

To view these publications, go to and click on “Publications and Reports.”

In addition, DOL sponsors two interactive websites – the Small Business Retirement Savings Advisor, available at , and, along with the American Institute of Certified Public Accountants (AICPA), . These encourage small business owners to choose the appropriate retirement plan for their business and provide resources on maintaining plans and correcting plan errors.

For employees:

A Look at 401(k) Plan Fees

What You Should Know about Your Retirement Plan (also in Spanish)

Savings Fitness…A Guide To Your Money and Your Financial Future (also in Spanish)

Taking the Mystery Out of Retirement Planning (also in Spanish)

Top 10 Ways to Prepare for Retirement (also in Spanish)

Women and Retirement Savings (also in Spanish)

To view these publications, go to and click on “Publications and Reports.”

Related materials available from the IRS:

The Retirement Plan Products Navigator, Publication 4460.

Lots of Benefits, Publication 4118, discusses the benefits of sponsoring a retirement plan and the stages involved in the life cycle of a retirement plan.

Have you had your Check-up this year? for Retirement Plans, Publication 3066, encourages employers to perform a periodic “check-up” of their retirement plans through the use of a checklist, and how to initiate corrective action if necessary.

401(k) Plan Checklist, Publication 4531, a tool to help you keep your plan in compliance with many of the important tax rules.

Designated Roth Accounts under a 401(k) or 403(b) Plan, Publication 4530, discusses this popular feature found in many 401(k) and 403(b) plans.

Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans), Publication 560.

To view these related publications, go to the Retirement Plans Community Web page at and click on “Forms/ Pubs/Products” in the left pane.

The IRS Retirement Plans Navigator, , a Web guide for choosing a retirement plan, maintaining it and correcting plan errors.

401(k) Plans for Small Businesses is a joint project of the U.S. Department of Labor’s Employee Benefits Security Administration (EBSA) and the Internal Revenue Service. Its publication does not constitute legal, accounting, or other professional advice.

To view this and other EBSA publications, visit the agency’s website at: To order publications, contact us electronically at: Or call toll free: 866-444-3272.

For assistance from a benefits advisor, visit EBSA’s website at and click on “Request Assistance.” Or call toll free: 866-444-3272.

401(k) Plans for Small Businesses (IRS Publication 4222) is also available from the Internal Revenue Service at: 1-800-TAX-FORM (829-3676). (Please indicate publication number when ordering.) This publication will be made available in alternative format to persons with disabilities upon request: Voice phone: (202) 693-8664 TDD: (202) 501-3911. Publication 4222 (Rev. 12-2011) Catalog Number 37055P Department of the Treasury Internal Revenue Service and U.S. Department of Labor