Starting a 401(k)? Make Sure Your Provider Has These 4 Features.
We know you’re starting a 401(k) for a good reason. Probably several good reasons, actually.
Maybe you want your 401(k) to attract and retain employees. Or maybe you want to maximize how much your owners or executives can save. Or maybe you simply want to do right by your employees and set them up for a brighter financial future.
Whatever your objectives, you’re going to need the right plan setup and the right provider to be able to achieve those goals.
And picking a plan and provider can be a bit of a bumpy road. Starting a 401(k) can often go one of two ways…
- Your plan ends up being a huge administrative burden. Hardly any of your employees participate. The plan exposes you to fiduciary risk. And perhaps worst of all? The plan costs way more than it’s supposed to.
- Or you find an awesome retirement benefit plan that requires little work on your end, comes with limited fiduciary risk, helps your employees save effectively, and serves as a competitive advantage in the war for talent.
Clearly, you want the second option. Here’s a quick guide on what to look for:
Make Sure Your Provider Keeps Costs Low
It’s hard out there for a small business - particularly when it comes to 401(k) costs.
On average, small businesses pay 5x as much for their 401(k) plans as their Fortune 500 counterparts. And those unfairly high fees can end up killing your savings.
Here’s how:
Yeah, you’re seeing that right. For a 30-year-old employee contributing $4,000 a year and retiring at age 65, a 1.3% difference in fees comes out to about $100,000 less in their savings.
We would call that an unacceptably high sum. Don’t settle for a plan with high fees. You deserve a plan that keeps your money in your pocket.
Make Sure Your Provider is Easy-to-Use
Running a 401(k) can be a lot of work. From depositing contributions to adjusting loan repayments, the sheer amount of time that it takes to manage a 401(k) can be prohibitive in and of itself.
And that’s without getting into the risks. Mismanagement may trigger a lawsuit - like the ones brought on Fidelity by their own employees for poor fund selection. Mistakes can also result in a DoL audit - which a whopping ⅔ of companies end up failing.
Yup. That’s a whole lot of risk.
So you’ll want a provider who can take a lot of that tedious work off your plate. And better yet, a provider who also takes on the legal responsibility for your plan and investments.
Make Sure Your Provider is Flexible
Businesses operate in different ways, so sometimes they need different plan designs.
For example, a business with high turnover (like a restaurant or resort) might want to put a few measures in place to exclude employees who might move on quickly.
These could include eligibility requirements or vesting schedules, which would prevent employees from participating in the plan or accessing any employer-contributed funds until after a certain amount of time.
You can also get really creative with different profit sharing formulas - allowing you to divvy up employer contributions in the way that’s most advantageous for your business.
These plan design features can be crucial for meeting your goals and optimizing your plan for your specific business. Unfortunately, not every provider supports custom plan designs. They might instead force you into cookie-cutter plan designs that are easy for them to run, but sub-optimal for your business. If you want your 401(k) to grow with your business and provide you with benefits for years to come, you’ll want a provider that can support custom plan design.
Make Sure Your Provider Offers a Delightful Employee Experience
To state the obvious, if your employees aren’t using the plan, nobody is benefiting from it. That’s why a provider with an exceptional and easy experience is so important - so your employees can benefit, and your business can benefit as well!
Our internal study found that employee retention was 11% higher among 401(k) participants vs. employees not in the plan.1
High participation and deferral rates also help you achieve the balance you need to pass nondiscrimination tests (NDTs) and allow your highly-compensated employees (HCEs) and business owners to max out their own contributions. It’s a win-win.
So be sure your provider offers a delightful employee experience - whether that’s with an online portal, a simple user experience, or free financial guidance. Whatever their secret sauce, the provider should be able to demonstrate high participation rates (ForUsAll plans average 85% participation).2
Conclusion
If you want the full benefits of a 401(k) - the retention, the tax breaks, the employee savings - you need a plan and provider that offers the full package.
As we’ve covered, that means a provider who offers minimal costs, low-effort, flexibility, and an amazing experience. And one who can support your business as it grows and changes, rather than locking you into a cookie-cutter plan.
Together, those four attributes equal an awesome plan and provider who will support the goals you originally set for your 401(k), all while seeing you and your employees through to a financially secure retirement.
Speaking of awesome plans and providers… We help businesses build exceptional 401(k)s the first time every day. Want to see what we can do for you? Schedule a quick, 10 minute demo today to learn about our tech-enabled 401(k) solution! We do all the heavy lifting for you, engage your employees with a delightful experience, and even assume legal responsibility for administration and investments - all for a fraction of the cost!
1. Data analyzed included all ForUsAll clients as of April 2018 with at least one year of tenure as a client and an employee count of 50 or more
2. Based on ForUsAll client data as of February 2019
