There are benefits for the business, as well. Offering a 401(k) plan helps businesses recruit and keep quality employees and remain competitive in talent markets. According to Glassdoor, a 401 (k) plan not only appeals to and retains better employees, it is a benefit that is even more attractive than a raise in salary for four out of five employees.
However, given the complexity of fee structures and product offerings, it can be costly and time-consuming for small business human resource administrators to select and administer the right plan and to anticipate and manage costs over the plan’s lifetime.
401(K) Benefits for Retirement Savings
As pensions have all but gone away in the private sector, 401(k) plans are the standard retirement benefit provided by businesses. However, not all retirement plans are created equal. Factors like fees, start-up costs you must pay upfront, and investment options make choosing the right plan for your business an important decision. Aspects of your workplace, including the age of your workforce and their risk appetite, also apply.
How It Works
An employer-sponsored retirement plan allows tax-exempt employee contributions of up to $19,500 (in 2020) annually toward retirement savings. Other retirement accounts, such as IRAs, only allow for contributions up to $6,000 per year in pre-tax income. Employers can match a portion of this contribution if they wish, but this is not a requirement. Employees benefit by reducing their taxes while saving for the future.
Selecting the Right 401(k) Provider for Your Small Business
There are four primary decision points when deciding who the best 401(k) provider is for your business:
- Investment options: Are there quality investment options? How daring or conservative is the plan?
- Fees and hidden costs: What costs and fees could both you and the employee incur?
- Ease of use and customer service: How easy is the product to understand and use? How easy is it to get help?
- Start-up costs: What will it cost out of pocket to get started?
The total cost of the 401(k) plan depends on a few different things, including what fees are included and how much flexibility the plan has.
Typical fee structures:
- Asset-based and custodial fees — typically 2%-3% of total assets
- Per participant — expenses based upon the number of participants in the plan
- Transaction-based — expenses based on the execution of specific actions
- Flat rate — a fixed charge that does not vary, regardless of plan size
Most plans use some combination of fee structures, while some newer plans offer more simplified models.
Depending on your business’s specific needs, circumstances, and goals, different structures could be appealing. You could choose a more traditional firm with more complexity or more simplified consumer options with easy enrollment. There are other considerations, such as customer support and transparency, that can be impactful as well.
Here is a roundup of the top industry leaders providing 401(k) plans for small businesses:
Fidelity Investments
An industry leader with a broad range of quality investments to choose from, Fidelity Investments offers flexible plans and a premium website providing a sophisticated online customer experience. Fidelity can have hidden fees and other surprises; their start-up costs can be considerable for a small business.
Charles Schwab
A trillion-dollar investment management firm and household name, Charles Schwab also offers 401(k) retirement plans tailored to small and medium-sized businesses. Smaller businesses and their employees may pay more fees and face higher costs.
Employee Fiduciary
With low start-up costs and fees, Employee Fiduciary prides itself on excellent customer service and easy-to-understand plans for small businesses. A toll-free helpline is available for participants to get information and guidance.
Betterment for Business
Betterment for Business is a newer entrant driven by data and new technology, including analytics that customizes your investment strategy according to factors ranging from age to personal goals. For technological users who feel confident with self-service.
Ubiquity Retirement
Designed for small businesses and built on a flat-rate model, Ubiquity is an innovator offering a service designed for entrepreneurs and startups. They provide a very simple product and serve independent contractors and small businesses with only a few employees.
Guideline
Guideline has a small business focus, charging one flat rate with no set-up fees or added investment costs. Exclusive investment options in high-quality Vanguard funds. Easy-to-use and understand with no additional fees and few surprises.
Everyday 401(k) by J.P. Morgan
Launched in 2020 for small businesses and startups, Everyday 401(k) is a low-cost digital solution that leverages J.P. Morgan’s investment experience. Chase Bank customers benefit from Everyday’s integration into their banking product.
America’s Back Office
With our full suite of ACA compliant benefit packages, we can build a comprehensive benefit program to meet your employees’ needs. We help you become an employer of choice by enhancing your job offer with excellent medical, dental, vision, and disability benefits. Because we pool employees from many companies into one large group, we can give your workers benefits only large businesses normally offer.
Choosing the Right 401(k) Plan
There are many factors to consider when choosing the best 401(k) plan, from saving money overall to reducing fees to spending less upfront. In addition, there are wider trends that can impact your choice, including how a fund performs, the average age and risk appetite of your employees, and many other factors.
America’s Back Office has you covered with 401(k) retirement plans for your small business. America’s Back Office is a professional employee organization (PEO) that manages the administration of human resources for companies. We have a team of experts that can find the right plan for your small business at a reduced rate. We handle all the administrative details, from enrollment to payroll, and all the record-keeping, including yearly reporting and audits.
Providing your employees with a high-quality 401(k) plan is a great way to attract and retain the best talent. Whether you are starting a new plan or have some assets to invest, reach out to learn more about how America’s Back Office can handle all of your administrative tasks, including 401(k) planning, freeing you up to focus on growing your business.
