401(k) Plan Design

Most of what a 401(k) plan costs, and most of what employees get out of it, is decided by the design choices written into the plan document. Old Slip Capital reviews and benchmarks those choices for plan sponsors from 40 Wall Street, Floor 28, New York, NY 10005.

The levers that matter

• Eligibility and entry dates — how quickly new hires join, and how that interacts with turnover.
• Employer contribution — match formula, nonelective contribution or profit sharing, and the shape of each.
• Vesting schedule — a retention tool that also affects forfeitures and plan cost.
• Automatic enrollment and escalation — the default rate, the step-up schedule and the qualified default investment.
• Safe harbor status — whether the plan buys its way out of ADP/ACP testing.
• Profit sharing allocation — pro rata, integrated or new comparability, depending on who the contribution is meant to reach.
• Loans, hardship and distribution rules — the provisions HR administers every week.

When design is the problem

Certain symptoms almost always point back to the plan document rather than the recordkeeper: highly compensated employees receiving refunds after nondiscrimination testing, owners unable to defer near the annual limit, participation stuck well below peers, or a match the company pays for without employees noticing it. Each of those has a design answer.

How we review a plan's design

• Benchmark the current design against comparable plans by size and industry
• Model cost and participation outcomes for realistic alternatives
• Coordinate with your recordkeeper, TPA and ERISA counsel on amendments
• Document the committee's reasoning in the minutes alongside the decision
• Re-run the review annually and after any material change to the company

Plan design decisions are made with your recordkeeper, third-party administrator and ERISA counsel; we bring the benchmarking and the committee process that frames them. Old Slip Capital does not provide legal or tax advice.

Common questions

What is 401(k) plan design?

Plan design is the set of rules written into your plan document: who is eligible and when, how the company contributes, how contributions vest, whether employees are enrolled automatically, and which testing safe harbors the plan uses. Those choices decide the plan's cost, its participation rate and whether it passes annual nondiscrimination testing.

What is a safe harbor 401(k), and should we use one?

A safe harbor plan makes a required employer contribution — typically a match or a flat nonelective contribution — that is immediately or quickly vested, in exchange for automatically satisfying the ADP/ACP nondiscrimination tests. It is often the right answer for companies whose highly compensated employees keep getting refunds after testing, or where owners want to defer the full limit. The tradeoff is a guaranteed annual contribution cost.

Does auto-enrollment actually improve participation?

It is the single most effective design lever available. Automatic enrollment with automatic escalation moves participation dramatically higher than opt-in enrollment, because most employees stay with the default. The design decisions that matter are the default deferral rate, the escalation schedule and the default investment.

How does the match formula affect cost and behavior?

A stretch match — for example matching a smaller percentage across a larger deferral range — can encourage employees to save more without raising the company's total contribution. Changing the formula's shape rather than its cost is one of the most underused tools in plan design.

How often should we revisit plan design?

At least annually, alongside fee benchmarking, and whenever the company changes materially: growth, acquisition, a change in workforce mix, repeated testing failures, or new legislation such as SECURE 2.0 provisions that alter what plans can and must offer.