Who can open a Starter 401(k)?

Employers are only eligible for a Starter 401(k) if they don't yet provide their workers with a retirement plan. But there are a few exceptions:

Businesses that previously had an IRA program through a mandated state-sponsored retirement program can choose to convert their plan to a Starter 401(k).
If a company previously offered a 401(k), but terminated it and has not offered any retirement plan in at least the prior 12 months, they may be eligible for a Starter 401(k).

Starter 401(k) limitations

While a Starter 401(k) plan may be a good fit for many employers, it poses several limitations and stricter requirements, including:

Lower contribution limits: With a Starter 401(k), the annual employee contribution limit is $6,000 (for 2024), which is significantly lower than the standard 401(k) limit. That means employees have less tax-advantaged savings for retirement each year. After that, the contribution level may be adjusted each year.
No employer contributions: Employers are not allowed to contribute to employees' Starter 401(k) plans, even if they'd like to. Under current IRS rules Starter 401(k) plans can only be converted to full 401(k) plans (increased limits, employer contributions, and testing) effective the first day of the plan year. This would require you to upgrade to a Standard 401(k) plan at the beginning of the tax year.
No flexible plan design options: Starter 401(k) plans have a one-size-fits-all approach to retirement benefits. They aren't as flexible as standard 401(k)s, which offer elective benefits such as profit sharing, vesting, and expanded eligibility requirements.
Contributing catch-up contributions: Employees over 50 can contribute an additional $1,000 in catch-up contributions for a total limit of $7,000 in 2024.
Automatic enrollment: Employees are automatically enrolled at a contribution set by the plan sponsor of at least 3% and no more than 15% of their salary.

A great start for employers offering a retirement plan for the first time