Secrets to Picking a 401(k) Provider
There has been a lot of press lately surrounding 401(k) plans from the DOL rule to even John Oliver. It seems that a majority of their focus has been centered around the F word; fees. While fees are important, understanding what exactly you’re getting for those fees is most important. Picking a small business retirement plan can be tough. When you evaluate a 401(k) provider, you have to act in the best interest of your employees. In addition to fees, you should compare the 401(k) provider’s; Investment Options, Fiduciary Assistance and Technology.
Understanding Fees:
There are actually a few different types of fees associated with 401(k) accounts. There are Fees that are paid for by the employer and fees that are paid by the employee. Employers will pay set up fees and annual fees to the Third Party Administrator or 401(k) Provider for establishing and managing the 401(k) plan (This includes discrimination testing, filing tax forms, creating an employer web portal, etc.).
Employees will pay fees based on the dollar value of their account balance. There are two types of 401(k) fees charged to the employees; one is an overall asset charge which is the same percentage for each employee and the other fee is attached to the investments within the plan. It is the responsibility of the Plan Trustee to ensure these fees are considered reasonable.
Investment Options:
Each 401(k) provider will typically offer around 300 funds to choose from. Each 401(k) Provider will have an array of Large Cap, Mid-Caps, Small Caps, Bonds and International funds. 401(k) providers differ in the type of specialty funds available (like a Technology Fund), some may offer Socially Responsible Investing (SRI funds), index funds or fund families available (i.e. Fidelity vs BlackRock). Remember to look at investment performance, costs and fund investment profiles. You’ll have to decide what is the most important.
Fiduciary Assistance:
If you’re a plan trustee, then guess what, you’re a fiduciary of the 401(k) plan. As a fiduciary, there are certain requirements that you’ll have to meet in order to maintain compliance such as;
Acting solely in the best interest of the participants and their beneficiaries
Carrying out duties prudently
Following the plan documents
Diversifying plan investments
Paying reasonable expenses
Most plans will provide some type of fiduciary support. It’s very important to know exactly what type of support they are providing. Basically, you want to know what is your responsibility compared to the fiduciary. At the end of the day, even though they claim co-fiduciary support the ultimate responsibility falls on you as the trustee.
Technology:
401(k) providers have been picking up their game and offering more interactive employee websites. Some providers have articles while some provide retirement calculators. What you should really look for is an easy to understand user experience. You want to make sure it’s a simple process for your employees to enroll, change their investments and rebalance their portfolio. All the other items are nice, but you want to make sure your employees can use the sit effectively.
Overall, there are many factors that go into choosing a retirement plan for a small business. Plan design is ultimately more important that the 401(k) provider. Make sure you are working with a team that has a process and experience working with small businesses on their retirement plans.