Five Design Features Agricultural Companies Worth Considering in a 401(k) Plan

two employees at a plant nursery

As a business owner in the agricultural sector, you may be considering starting a retirement plan for your employees, or you may already have a plan in place that needs some updating. From technology to employee education, there are particular challenges agricultural companies face when designing and communicating a 401(k) plan. We’ll share our top five features to consider when creating or updating your retirement plan.

#1 Adopt a Safe Harbor Provision

If you already have a 401(k) and matching program or are designing your plan for the first time, adding a safe harbor provision may be a critical component.

Companies with a traditional 401(k) plan must perform annual nondiscrimination testing to remain compliant and ensure every employee can benefit from a plan fairly. These tests measure a plan’s participation, contributions, and other factors. For example, suppose more highly compensated employees participate in your plan than lower-paid employees. In that case, it can result in an imbalance in the plan’s assets or a “top-heavy” plan, which the IRS considers is favoring highly compensated employees.

However, the nondiscrimination calculations can also make it difficult for a highly compensated employee, such as an executive or owner, to max out their annual 401(k) contributions. This can quickly become a common scenario and challenge among small agricultural companies that consist of owners and a few farmworkers with significant differences in income.

If this is your situation, you can avoid a top-heavy plan and annual nondiscrimination testing by adopting a safe harbor provision in your 401(k) plan. In a safe harbor plan, employers contribute to an employee plan through matching or other contributions. Matches, in particular, incentivize more employees to participate and save for retirement, and the IRS offers the benefit of “safe harbor” from annual testing. Consult with a retirement plan professional to determine if this would be suitable for your company.

#2 Establish an Investment Committee

Managing a 401(k) program comes with specific requirements and rules from the IRS, Department of Labor, and Employee Retirement Income Security Act (ERISA). Plan administrators have the fiduciary responsibility to oversee a plan, review that investments are diversified and fees are reasonable, and share plan details with employees, among other duties.

It’s important to establish an investment committee so you can stay up-to-date with your plan and regulations and act in your employees’ best interests. A committee may look different from company to company, consisting of executives, HR representatives, a third-party retirement plan professional, or a combination of internal and external teams. If you’re a larger company with several different job levels, you may even consider appointing employee delegates representing the various employees you serve.

#3 Share Plan Information in Multiple Languages

To promote your plan’s success, your staff will need to understand its features and guidelines clearly. It can be challenging to do this if the information, disclosures, and jargon are not in your employees’ primary language.

To facilitate a comprehensive understanding, ensure you’re providing materials and communicating presentations in multiple languages, as applicable to your employees’ needs. While this may seem like an obvious detail, it’s a common mistake we see in the agricultural sector, which overlooks the diverse makeup of its farmworkers and their ability to make investment decisions and plan for retirement.

#4 Use Technology

Another typical detail that’s often missing from agricultural retirement planning for employees is the use of technology. It can be a challenge if most employees, including the owners and managers, work on a farm and do not require a computer to perform their daily tasks.

However, even small steps that leverage technology can be significant in your retirement plan’s effectiveness and ensure you’re meeting your requirements if you’re the plan administrator. For example, it’s harder to walk participants through the plan’s details, disclosures, and guidelines and offer to print essential documents without access to a computer.

At the minimum, we encourage you to set up a workstation where your employees can securely use a computer, view their statements, and print the resources they need.

#5 Provide Employee Education

When you’re managing day-to-day operations, a sprawling worksite, and several groups of employees, retirement plan education can quickly go on the back burner on your list of priorities. However, as a plan administrator, you’re required by law to meet specific compliance guidelines—one of which is providing employee education to help inform investment decisions.

The positive results of education can help increase your plan’s participation and employee loyalty for employees who feel supported, engaged, and secure with their retirement benefits. However, overlooking this key area can result in legal action by your employees, increased risk to your organization, and expensive plan corrections.

Train plan fiduciaries or work with a company specializing in retirement plans and administration to create an employee education campaign that fits your agricultural business and employee needs in an efficient and compliant way.

How RWM Financial Group Can Help

We’re aware of the challenges agricultural companies face daily and how operations could affect the effectiveness of an employee retirement plan.

At RWM, we help businesses like yours create well-managed retirement plans that benefit both your employees and you as an employer. Contact us to learn more about how we develop customized solutions to help you design a 401(k) program, maintain compliance, reduce your costs, and increase employee loyalty.