How to pick the best small business 401(k) plan provider
Starting with the Pension Protection Act of 2006 through the recent passage of the SECURE (Setting Every Community Up for Retirement Enhancement) Act that was implemented in 2020, there has been a greater emphasis by government officials to address the growing gap in retirement savings for Americans. The main goal of the recent legislation is to make retirement savings more readily available to everyone. The effect on 401(k) providers has been to gravitate away from insurance and proprietary-based mutual fund platforms which have made 401(k) plans more feasible to employers of all sizes. There are several factors a business owner needs to address when selecting a small business 401(k) provider, to ensure they are an equitable partner.
Factors for Finding a Great Small Business 401(k) Plan
1. Cost and Plan Fees
A big reason 401(k) plans have become more accessible for all business sizes has been provider fee compression over the last 10 years. Back in the 1990s, for a small business to set up a 401(k) plan, the normal course of action was to first hire a Third-Party Administrator (TPA) which would charge thousands of dollars and then hire a recordkeeper, usually an insurance company, that would charge an inflated asset-based fee of up to 1.5%. This process has been streamlined nowadays, the most cost-effective 401(k) solution for a small business is typically a “bundled solution” where one company provides both recordkeeping and TPA services.
401(k) plan fees can still be a headache to fully decipher. Here are just a few of the terms you may see that represent a fee type: Asset-based fee, wrap fee, contract maintenance charge, revenue sharing, base fee, compliance services, consultant fees, per participant fees and the list can keep on going.
Many modern 401(k) plan providers that cater to small businesses have made a concerted effort to simplify and make fees more transparent. LT Trust has been no different as our fee schedule is very straight forward:
- $1,600 Annual Base Fee
- $36 Per participant with a balance
- 0.10% annual asset-based fee
2. Ease of Use
Another reason that small business 401(k) plans have become more prevalent for small businesses is due to increase efficiencies, such as 401(k) payroll integration and self-service tools. The perception of sponsoring a small business 401(k) plan is that there are constant administrative tasks that need to be completed. The biggest administrative lift there is revolves around processing payroll contributions each pay period. 401(k) providers such as LT Trust have invested heavily to streamline this regularly occurring process through technology data integrations with the Nation’s leading payroll companies and through our Payroll Assist Program. The result of this automated data aggregation also provides efficiencies for another concern of plan sponsor’s; annual compliance testing. Historically, plan sponsors would need to complete a year-end census and questionnaire for 401(k) providers to complete annual compliance processes. With continuous data integrations for each payroll, LT Trust already has that information!
3. Customer Service
Customer service for financial services conjures thoughts that range from “I got what I needed” to “I would rather have heartburn.” Everyone has had an unpleasant experience of going down the black hole of a call center and waiting anxiously for someone to answer. When determining what 401(k) partner is best suited for you, the answer to how easily do I get to talk with someone on the phone should be considered. For example, at LT Trust, the experience for all our plan sponsors is a one-on-one service model. When a new client is onboarded onto our platform, there will be a single point of contact throughout the entire process. The Implementation Team will guide you throughout the setup process. Once a plan is fully onboarded at LT Trust, a dedicated Relationship Manager will be assigned to your plan and will be the single point of contact for any questions that you have.
4. Administration and Record-keeping
401(k) services are typically broken down into two type of categories, administration, and record-keeping. The administration functions as it relates to a 401(k) plan can be simply summed up as making sure your 401(k) plan remains compliant with the different government agencies such as the IRS (Internal Revenue Service) and DOL (Department of Labor). This will include, non-discrimination testing, profit sharing calculations, plan document maintenance and preparing the federal tax Form 5500 on behalf of the plan sponsor. Record-keeping often refers to the day-to-day activities associated with a 401(k) plan such as processing transactions (payroll contributions and transfers), website upkeep for both participant and plan sponsors. LT Trust’s 401(k) platform offers a bundled 401(k) solution that provides both record-keeping and administration services under one roof.
Access to an exceptional employer sponsored 401(k) plan is going to give employees a leg up when it comes to building their nest egg to reach the goal of a dignified retirement. Now more than ever, small businesses have access to a cost-effective and dynamic 401(k) plan. With renewed emphasis by both federal and state governments to encourage retirement savings, employers should take note and be at the leading edge of providing a simple, yet invaluable benefit to their employees.
