Provisions to provide: At a minimum, allow all employees to make pre-tax and after-tax (Roth) contributions to a 401(k) plan. Here are the main benefits of allowing employees to make contributions to a 401(k) plan:

Pre-tax contributions provide employees with an immediate deferral of current income taxes on the compensation contributed, and the deferral of any tax on investment gains (which can be a great benefit, since over time, investment gains can be quite impressive). The more time the employee is able to save and to let investment gains accumulate, the bigger the retirement nest egg available. Upon withdrawal from the plan (which is hopefully at/after retirement and when the retiree's income tax bracket presumably is lower post-retirement than before), ordinary income taxes will apply.

Roth contributions are taxed when made to the plan, but any investment gains are never taxed (provided the first Roth contributions were made at least five years before the first withdrawal and provided the participant is at least age 59 ½ at the time of withdrawal). For younger employees, especially, making Roth contributions versus pre-tax contributions might be more beneficial. Generally, younger employees are in a lower income tax bracket than what will apply as their salaries (and income tax brackets) increase throughout the years. In addition, younger employees' Roth contributions have a long period of time over which to experience investment gains. The end result is that at the time of withdrawal, the Roth contributions have grown in amount, and no part of the distribution is taxable. By being taxed at a low rate at the time made (years prior to the withdrawal), and by never being taxed on the investment gains, making Roth contributions can prove beneficial to an employee.

For lower-income employees, making contributions to a 401(k) plan can also allow the employees to take advantage of the Saver's Credit. For the first $2,000 of contributions an employee makes to a 401(k) or similar employer-sponsored retirement plan (or to an IRA), tax credits are available of up to $1,000 for single-filers, and $2,000 for married couples. For 2013, the adjusted gross income limit for the Saver's Credit is $59,000 for married couples filing jointly; $44,250 for heads of household; and $29,500 for married individuals filing separately and for singles.

Consider implementing an automatic contribution arrangement (frequently referenced as an automatic enrollment provision or feature). In an automatic contribution arrangement, pre-tax and/or Roth contributions are automatically made to the 401(k) plan, unless the employee affirmatively elects not to make contributions or elects a percentage other than an applicable default percentage.

Industry surveys by Aon Hewitt and by the Vanguard Group, as referenced in an article in Institutional Investor found that most employees who are automatically enrolled will stay enrolled, meaning the employees will continue allowing contributions made to the 401(k) plan on their behalf.
In addition, the findings show that employees continue to stay enrolled in an automatic contribution arrangement even where the arrangement has an escalation feature. Typically, an escalation feature is where annually, the default contribution percentage rate at which an employee was automatically enrolled is gradually increased up to a stated ceiling percentage.

ADP test consideration: Ensure the 401(k) plan provides for the "otherwise excludable" rule (under Regulation section 1.401(k)-2(a)(1)(iii)), which allows for what is known as "split-testing."

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