For many business owners, offering a 401(k) becomes part of a bigger conversation about how to support employees while building a retirement strategy for themselves.
That conversation has become more relevant in California. With changes that took effect on January 1, 2026, employers with one or more employees generally must offer a qualified workplace retirement plan or facilitate CalSavers, unless an exemption applies.
For some businesses, CalSavers may be enough to meet the state requirement. For others, a 401(k) can provide greater flexibility, higher contribution opportunities and more control over how the plan is designed.
If you are considering starting a 401(k), it helps to understand the choices that can affect how well the plan works for both the business and the people it serves.
Start With What You Want the Plan to Accomplish
A 401(k) can play different roles depending on the business. You may want to offer a stronger employee benefit while creating more opportunity to save for your own retirement through the business. You may also want the flexibility to make employer contributions as part of the plan.
Those priorities matter because 401(k) plans can be structured in different ways. Employers can decide whether to make matching or nonelective contributions, while other plan features influence employee eligibility and how contributions are allocated.
Thinking through those goals first can make it easier to evaluate the type of plan and provider that best fit the business.
Understand How a 401(k) Differs from CalSavers
CalSavers is California’s state-facilitated retirement savings program for workers whose employers do not offer a qualified retirement plan. It uses individual retirement accounts funded through employee payroll deductions.
Employers do not pay CalSavers program fees, make employer contributions or assume fiduciary responsibility for the program.
A 401(k) gives employers more flexibility in how the plan is structured and allows the business to make employer contributions. It also offers employees greater contribution capacity than an IRA.
For 2026, an employee can generally defer up to $24,500 into a 401(k). The 2026 IRA contribution limit is $7,500. Participants age 50 or older may also qualify for additional catch-up contributions, depending on the applicable rules.
For business owners who want their company retirement plan to play a larger role in their own retirement strategy, that difference can be meaningful.
Plan Design Can Affect the Owner’s Opportunities
Starting a 401(k) involves more than choosing a provider. Traditional 401(k) plans are subject to annual nondiscrimination testing designed to keep the plan from disproportionately benefiting owners and other highly compensated employees.
A safe harbor 401(k) can avoid the annual ADP and ACP nondiscrimination tests that apply to traditional 401(k) plans when the plan satisfies the applicable requirements. Safe harbor plans generally require specified employer contributions that are fully vested when made.
The right structure depends in part on the business and its workforce. For some profitable companies, the conversation may also include a profit-sharing feature or a cash balance plan that creates additional retirement-saving opportunities.
You can learn more in our article on 401(k) and cash balance plan strategies.
New 401(k) Plans May Require Automatic Enrollment
Business owners establishing a new 401(k) should also be aware of automatic enrollment requirements created by SECURE 2.0.
In general, 401(k) plans established on or after December 29, 2022, are subject to automatic enrollment requirements for plan years beginning after 2024, unless an exception applies. The required initial automatic contribution rate generally falls between 3% and 10% of compensation and increases over time under the statutory rules.
Exceptions apply to certain small businesses, newer businesses and other qualifying plans. Employees can still change their contribution election or opt out. For the employer, however, automatic enrollment is an important consideration when coordinating the plan with payroll and other administrative systems.
Tax Credits May Help with the Cost of Starting a Plan
Federal tax credits can help eligible small businesses offset some of the cost of establishing a retirement plan.
Employers with 100 or fewer employees who meet IRS requirements may qualify for a startup cost tax credit of up to $5,000 per year for three years. For eligible employers with 50 or fewer employees, the credit can cover 100% of qualified startup costs, subject to the applicable limits. Eligible expenses can include costs associated with establishing and administering the plan as well as educating employees about it.
Additional credits may be available for certain employer contributions. Eligible employers that add a qualifying automatic enrollment feature may also be able to claim a $500 annual credit for three years.
Because eligibility depends on the business and the plan, these credits are worth reviewing with a tax professional as part of the planning process.
Understand the Responsibilities That Come with Sponsoring a Plan
A 401(k) also brings ongoing responsibilities for the employer. A business that sponsors a retirement plan is generally subject to fiduciary standards under ERISA when carrying out certain plan functions. Those responsibilities can include acting in participants’ interests, following the plan documents and paying only reasonable plan expenses.
Businesses can hire outside professionals to handle many aspects of plan administration and investments. Even then, selecting and monitoring service providers remains an important responsibility.
That makes provider selection an important part of the process. Business owners should understand what services are included and who will handle the different responsibilities involved in operating the plan.
Planning for a 2027 Retirement Plan
If you are considering establishing a 401(k) for 2027, starting the conversation before the new year gives you time to think through the plan structure and how it will work with payroll.
It also gives you a chance to look at the retirement plan in the context of the business itself. For some owners, a straightforward 401(k) may meet the need. For others, the planning process may uncover opportunities to make employer contributions or explore a structure that can evolve as the business grows.
Johanson & Yau helps business owners evaluate retirement plan design and how it fits within their broader financial strategy. Learn more about our business retirement plans or contact our team to start a conversation.
Sources:
https://www.treasurer.ca.gov/calsavers/
https://www.calsavers.com/home/frequently-asked-questions.html
https://www.irs.gov/newsroom/401k-limit-increases-to-24500-for-2026-ira-limit-increases-to-7500
https://www.irs.gov/retirement-plans/plan-sponsor/401k-plan-overview
https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit
https://www.irs.gov/publications/p560
https://www.dol.gov/agencies/ebsa/employers-and-advisers/small-business-owners/understanding-your-responsibilities