401(k) Providers: Best Practices in Selecting a Company

Retirement benefits are a key part of a benefits package that attracts and retains top talent. Research 401(k) providers to find a plan that fits into your budget and long-term goals. 

 

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What is a 401(k)?

A 401(k) is a company-sponsored retirement plan that employees can use to save money for the long-term. A 401(k) is a type of qualified retirement plan, meaning it gets certain tax benefits unavailable to non-qualified plans. For the most part, employees don’t pay taxes on the money they put into a 401(k) until they withdraw it, allowing them to earn more in interest over time.

Related: How to Set Up a 401k Plan for Your Business 

 

Benefits of offering a 401(k)

Offering a 401(k) retirement plan makes your business more competitive by providing long-term financial benefits. Retirement plans attract top talent and give employees a reason to become more invested in staying with your business and promoting its success. Some types of 401(k) plans also make your business eligible for a tax credit to offset the costs.

 

Selecting the right 401(k) plan for your business

There is a wide range of retirement plans and different providers to choose from. The terms of a 401(k) plan impact your legal liability, your employees’ ability to save and your company’s bottom line. Follow these steps to choose a plan type that works for you.

 

Set a budget

Look at your company’s finances and determine how much you can afford to spend on 401(k) administration and other associated payments. Larger budgets allow you to consider options like matching employee contributions and outsourcing compliance.

Read more: Budget Management: Three Skills Essential for New Managers

 

Research your options

Spend time studying the different types of 401(k) program and their contribution limits. Some 401(k) options have a cap on how much employees can contribute, limiting how much high-earning employees can save. Some of the popular 401(k) plans are:

  • Traditional
  • Safe harbor
  • Roth
  • Solo
  • SIMPLE

 

Assess risks

Administering a 401(k) plan on behalf of your employees can give you some level of fiduciary liability where you are responsible for making smart investment decisions on behalf of account-holders. Some plans allow providers to take over or share this liability, protecting your business. Do a risk assessment for what level of support you need in a plan. 

 

Determine your time commitment

401(k) plan providers help your business by providing financial advice, recordkeeping and handling contributions. Some plans will take more of your time and attention than others, so research plan details to determine how much time you will have to spend managing different plan options.

 

Evaluating a 401(k) provider

401(k) providers assist small businesses with planning, implementation, recordkeeping and management of employee retirement plans. The level of involvement of the provider in plan implementation depends on the company and the plan you choose. Thoroughly research each provider you are considering by evaluating each of these aspects and comparing your options:

 

Reputation

Read client reviews to assess the reputation of each 401(k) provider. Feedback from other users on the ease of experience, quality of investments and other factors can help you determine which company best suits your business needs. Learn about different providers’ reputations when it comes to meeting deadlines, providing legal guidance, overseeing advisors and processing information requests.

 

Certifications

Inquire about the certifications and licenses of the people who work at each 401(k) provider. Financial advisers who are certified as a Registered Investment Adviser have a legal obligation to uphold the best interests of your and your employees. Some investment brokers and insurance agents also provide 401(k) plans, but they don’t have the same legal responsibility to protect your finances.

 

Administration and customer service

Ask about the administrative processes each provider has in place to set up your company plan, manage employee information, respond to questions, updates and plan changes. Providers that offer hands-on support can be especially beneficial to small businesses who have never managed employee 401(k)s before. A strong customer support team also makes it easier for your employees to access information about their plan and make changes when necessary, allowing them to get full available benefits.

Related: Benefits Enrollment: Best Practices for Your Company

 

Fees

401(k) providers charge fees to both business owners and employees in exchange for the service of managing their 401(k) plans. Fees pay for the services of accountants, lawyers, record keepers and other investment professionals. The three main fees of a 401(k) are:

  • Investment fees: Employees pay investment fees so that investment managers can actively manage their money. The more involved a provider is in managing investments, the higher their investment fees they charge.
  • Administration fees: Employers or employees can pay administrative costs as either a percentage or a recurring flat payment.
  • Individual service fees: Some plans have optional features that you only pay for if you elect to sign up, such as financial advice or transferring funds from one account to another.

401(k)s have an expense ratio, which is the percentage of an investment that goes toward covering overall fees. The lower an expense ratio, the less your employees will pay in fees. Most 401(k)s cost one to two percent of the total amount contributed to the retirement account.

 

User-friendliness

Explore the benefits interface of each provider. Their website and software should be intuitive and easy-to-use for employees. Features like payroll integration, online reports and chat bots can help you and your employees set up and track benefits and contributions.

 

Scalability

Assess 401(k) providers based on how they can fulfill your company’s needs now and in the future. Project growth and look for a company plan that could scale with your business and provide comprehensive support for a larger workforce with different retirement needs.

 

Frequently asked questions about small business 401(k)s

 

How much does it cost to set up a 401(k) plan for a small business?

Small businesses can expect to pay between $500 and $3,000 to set up a 401(k) in addition to ongoing monthly fees for each employee.

 

Can small businesses offer a 401(k)?

Any size business can qualify to offer 401(k)s, including small businesses and sole proprietorships.

 

What is the difference between a SIMPLE IRA and a 401(k)?

A SIMPLE IRA is a retirement plan designed for companies that employ fewer than 100 people. Employers have to contribute to SIMPLE IRAs, while 401(k) employer contributions are optional.

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