Understanding 401(k) Providers for Small Businesses

You’re a small business owner, juggling everything from payroll to employee morale. Now, you’re thinking about offering a 401(k) plan to attract and retain talent. But where do you start? The first step is understanding what a 401(k) provider is and why it matters.

A 401(k) provider manages employer-sponsored retirement plans. These providers handle everything from plan administration to compliance, making it easier for you to focus on running your business. Examples of 401(k) providers include financial institutions like Fidelity and Vanguard. They ensure your employees’ contributions are managed securely and effectively, taking the administrative burden off your shoulders.

What Kind of Small Business Fees is the Provider Charging?

A study by BrightScope found that small businesses are paying 401(k) fees at a rate five times higher than large enterprise companies. Sounds pretty nuts, right?

Going with a low-cost plan is key to your plan’s success. Even the smallest increase in a fee (such as a few tenths of a percent higher than it needs to be) can highly decrease how much you and your employees end up with in your account when it comes time to retire. Make sure you’re getting charged the lowest fee possible.

Which Provider is Offering the Easiest Plan?

Many business owners avoid offering 401(k) plans because they’re simply too complicated. However, it’s hard to get around the complexity of retirement accounts because of how strictly they’re regulated and how important it is to run them properly to stay compliant.

Reduce your own personal headache by finding a company that takes on the complex and tedious obligations and assumes legal responsibility for your investment fund lineup.

Here are a few financial service companies that are leading the pack by only providing great, affordable retirement plans, but also leading in customer service by taking on obligations that would normally fall on you such as administrative services and investment fiduciary duties.

How Flexible is the Plan?

Your 401(k) plan should have flexibility in:

• Investment options: With the tens of thousands of investment products such as mutual funds and index funds out there, savvier small business owners and employees may want to expand outside of the simple index funds lineup. It’s important that they have access to the plethora of investment options so they can reach their portfolio goals.
• Plan design: Your plan design consists of the type of plan you’re getting (such as Traditional, Simple IRAs, etc.), eligibility, employer contributions, vesting, and more. If your plan has too many limitations in these categories, it might decrease employee participation or even increase your costs.

What is the Employee Experience Within the 401(k) Plan Like?

You should evaluate the employee experience of a provider’s retirement plan by looking at how they help with:

• Participation and savings rates: Your retirement plan will undergo compliance testing every year (as required by the IRS) to ensure that it’s not just your highest-earning employees that are reaping the benefits in their accounts. You’ll have to refund your highest-earning staff members their contributions if your plan fails the test, and they won’t be able to max out their contributions. Your provider should make sure this doesn’t happen by maximizing participation and employee contributions.
• Financial wellness: Your plan should (at the very least) make employees feel like they’re on the right track to saving enough for retirement. While your provider should offer services including investment advice, they should also be able to assist in other personal finance areas to increase the success of your retirement plan.

Now let’s take a look at a few small business 401(k) providers and see what their plans include and how they compare when it comes to the above criteria.

ForUsAll

Employer pricing: $1,200+$48/employee/year   Advisory fee: 0.35% annually

ForUsAll’s automated compliance and administration software aim to almost entirely reduce the headache of running a 401(k). The company offers help in areas ranging from enrolling new employees and depositing contributions to large plan audits.

The software runs 44 unique validation checks when you use your payroll service to make sure no errors have occurred, and the company’s team of administrators will work to resolve any errors that do arise. You’ll be notified of these occurrences and more on your fiduciary dashboard.

ForUsAll also comes with a virtual advisor named DAVE, who gives advice and offers easy-to-understand education on the plans in both English and Spanish. Your employees will also be communicated with frequently in an effort to increase participation and savings. The company’s website claims their plans have an average participation rate of 85.89%.

Guideline

Employer pricing: $39/month or $99/month + $8/employee/month   Advisory fee: None

Guideline is a startup that describes itself as the “modern 401(k) built for startups and small businesses.” Instead of paying separate charges 401(k) providers often require for record-keeping and administration services, employers are only required to pay a monthly fee per employee.

Guideline tailors your plan design to fit your needs. You can choose from a Traditional, Roth or Safe Harbor 401(k) and even set up profit-sharing options that allow you to make discretionary year-end contributions (as tax-deferred bonuses) to your employees’ accounts, as well as matching options to increase participation.

Both employers and employees will get a dashboard that makes managing 401(k)s even easier. As an employer, you’ll be able to view your employee roster, conduct non-discrimination testing, view your document library, and get support from a team of administrators. Employees will be able to use the dashboard to check their balance, contribution rate, recent activity and get important notifications.

Human Interest

Employer pricing: $120/month + $4/employee/month/   Advisory fee: 0.50% annually

Human Interest’s website says they “cost less than a single employee’s health insurance.” The San Francisco-based company helps small-to-mid-sized businesses set up 401(k) plans for their employees. The founders said they came up with the idea for the business after realizing how frustrating it was to actually set up a retirement plan.

Human Interest offers automated administration, payroll sync and record-keeping, as well as automated signup and onboarding for all employees. They also handle all of the document preparation and filing with the IRS so you can stay compliant, as well as participant disclosures, annual plan notifications, as well as non-discrimination testing and monitoring.

You will also receive full account support and customization with a dedicated account manager. Your manager will provide a flexible plan design as well as an easy conversion process for employees who already have existing plans.

Employee Fiduciary

Employer pricing: $1,500/year   Advisory fee: .08%

Employee Fiduciary works to “offer small businesses the same low fees, quality service, and investment choice as plans sponsored by our country’s largest organizations,” according to their website.

Employee Fiduciary offers comprehensive setup services and works to get your plan tailored to your goals with a plan design consultation. This consists of matching a plan to your company’s goals, preparing all of the necessary documents, and training you on the website and payroll upload. Employees’ existing plans will also be transferred as part of the setup process.

You will be assigned a “dedicated relationship manager” that will help you with anything you need so you don’t have to stay on hold while waiting for someone at a call center to assist you. Your manager will help with administration duties such as maintaining compliance, completing non-discrimination testing, and calculating year-end contribution allocations.

You will also be provided with record-keeping services such as updating share prices and account balances daily, processing plan trades, preparing benefit statements, maintaining participant loans, and providing fee disclosure notices.

Ubiquity

Employer pricing: $1,380/year   Advisory fee: None

Ubiquity offers uncomplicated, easy 401(k) plans for a flat fee. The company works to help their clients “take advantage of programs like Safe Harbor, 401k match, Roth and pre-tax contributions, and automatic enrollment,” according to their website.

Instead of simply providing investment choices in which they have a vested interest like many companies do, the company prides itself on its ability to provide investment flexibility if you want it, and strategy guidance if you need a little more structure.

Ubiquity calls itself a “retirement concierge.” They aim to make compliance as easy as possible with electronic statements, tax filing and plan document preparation, participant disclosures, annual plan notifications, IRS testing and monitoring, and eligibility notices. You will also have access to intuitive technology that will protect you against errors.

Benefits of Offering a 401(k) Plan

You might be wondering, “Is it really worth the hassle to set up a 401(k) plan?” The short answer: absolutely. Here’s why.

Attract and Retain Talent

Offering a 401(k) plan gives you a competitive edge in hiring. Employees are more likely to join and stay with a company that offers retirement benefits. A 401(k) plan shows that you care about their future, which can significantly boost morale and reduce turnover.

Tax Advantages

There are also tax benefits for your business. Employer contributions to a 401(k) plan are tax-deductible, reducing your overall tax liability. Plus, employees can contribute pre-tax dollars, lowering their taxable income and giving them a financial boost.

Employee Financial Security

A 401(k) plan helps your employees save for retirement, giving them peace of mind. When employees feel financially secure, they’re more productive and engaged at work. It’s a win-win situation for everyone involved.

How Does a 401(k) Provider Work?

You’ve decided to offer a 401(k) plan. Great! But how does it actually work? Let’s break it down.

A 401(k) provider manages the administrative and compliance aspects of your retirement plan. They handle tasks like recordkeeping, investment management, and fiduciary services. For instance, they’ll ensure that employee contributions are correctly deducted from payroll and invested in the chosen funds. Providers like Fidelity and Vanguard offer robust platforms that make it easy for both employers and employees to manage their accounts.

These providers also offer fiduciary support, helping you navigate the complex regulations surrounding 401(k) plans. They ensure that your plan complies with federal and state laws, reducing the risk of legal issues. This is crucial for small business owners who may not have the resources to handle these tasks in-house.

In summary, a 401(k) provider takes care of the heavy lifting, allowing you to offer a valuable benefit to your employees without getting bogged down in administrative details.

What to Consider When Choosing a 401(k) Provider

Choosing a 401(k) provider feels like a big decision, and it is. You want to ensure you’re picking the right partner to help manage your employees’ retirement plans. Here’s what you need to keep in mind.

Costs and Fees

First things first: money. The costs associated with setting up and maintaining a 401(k) plan can vary widely. You’ll encounter setup fees, administrative fees, and investment fees. It’s crucial to understand these costs upfront. Look for a provider that offers transparency in their fee structure. Providers like Fidelity and Vanguard are known for their low-cost options, but always read the fine print.

Customer Support

Reliable customer support can make or break your experience with a 401(k) provider. You need a provider that offers excellent support to both you and your employees. Whether it’s through phone, email, or live chat, timely and effective support is non-negotiable. Imagine dealing with a payroll issue and not being able to get immediate help—that’s a nightmare you want to avoid.

Ease of Use

A user-friendly platform is essential for managing your 401(k) plan efficiently. Look for providers that offer intuitive dashboards and easy-to-navigate interfaces. This makes it simpler for your employees to enroll, track their contributions, and manage their investments. Payroll integration is a significant plus. Homebase, for example, offers seamless payroll integration, making it easier to manage 401(k) contributions.

Compliance Support

Navigating the labyrinth of regulations surrounding 401(k) plans can be daunting. You need a provider that offers strong compliance support to ensure you meet all federal and state requirements. This includes assistance with annual reporting, nondiscrimination testing, and fiduciary responsibilities. Providers that offer robust compliance support can save you from potential legal headaches down the line.

How to Evaluate 401(k) Providers

Evaluating 401(k) providers can feel overwhelming, but breaking it down into manageable steps makes it easier. Here’s how to go about it.

Compare Fees and Costs

Start by comparing the fees and costs of different providers. Look for transparency in their fee structures. Providers like Vanguard and Fidelity are known for their low-cost options, but make sure you understand all the fees involved, including administrative and investment fees.

Assess Investment Options

Investment options are a critical factor in choosing a 401(k) provider. You want a provider that offers a variety of funds to meet the diverse needs of your employees. Look at the performance of these funds over time and compare them against benchmarks. Providers like Vanguard offer a range of index funds, while Fidelity provides both actively managed and index fund options.

Check Fiduciary Services

Fiduciary services are essential for managing investment choices and ensuring compliance. Check if the provider offers fiduciary support, which can help you navigate complex regulations and minimize your administrative burden. Providers like ADP and Paychex offer fiduciary services, making it easier for you to manage your plan.

Review Customer Testimonials

Customer testimonials can provide valuable insights into the provider’s performance. Look for reviews from other small business owners to gauge their experiences. Websites like Trustpilot and the Better Business Bureau can be good resources for finding authentic reviews.

Solicit Proposals

Finally, solicit detailed service proposals from potential providers. This will give you a comprehensive view of what each provider offers, including their fee structures, investment options, and customer support. Don’t hesitate to ask questions and clarify any doubts you may have.

Tips for Maximizing 401(k) Plan Benefits

Offering a 401(k) plan is just the first step. Maximizing its benefits requires ongoing effort and strategic planning. Here’s how to get the most out of your 401(k) plan.

Encourage Employee Participation

One of the best ways to maximize the benefits of your 401(k) plan is to encourage employee participation. Consider automatic enrollment and matching contributions to boost participation rates. Automatic enrollment ensures that employees start saving for retirement as soon as they join, while matching contributions provide an added incentive.

Offer Financial Education

Financial education can significantly impact how employees perceive and utilize their 401(k) plans. Offer workshops, online resources, and one-on-one consultations to help employees understand their investment options and the importance of saving for retirement. Providers like Fidelity and Vanguard often offer educational resources as part of their service.

Regularly Review Plan Performance

Regularly reviewing your 401(k) plan’s performance is crucial for ensuring it meets your employees’ needs. Conduct an annual review to assess the performance of the investment options and make adjustments as necessary. This ensures that your plan remains competitive and continues to provide value to your employees.

What is the Best 401(k) Provider?

So, what’s the best 401(k) provider for your small business? The answer depends on several factors, including cost, support, and investment options.

Factors to Consider

When choosing the best 401(k) provider, consider the following:

• Cost: Look for providers with transparent and reasonable fee structures.
• Support: Ensure the provider offers excellent customer support.
• Investment Options: Choose a provider that offers a variety of investment options to meet your employees’ needs.
• Compliance: Strong compliance support is crucial for avoiding legal issues.

Choosing the right 401(k) provider can significantly impact your employees’ financial future and your business’s success. Take the time to evaluate your options carefully and make an informed decision.