Shopping for a 401(k) provider can feel overwhelming — and doing so for a small business can be an ever bigger challenge. About 50% of small businesses don’t offer 401(k) benefits to their employees, due to cash flow or the prohibitive costs of buying for a small group.
However, offering 401(k) accounts to your team can make a big difference to the lifeblood of your company. A benefits package has the power to attract — and retain — top talent.
But how can your small business find a quality 401(k) provider at par with what corporations are offering? Here are the four most important things to consider when making your decision.
Want a handy guide on providing a 401(k) for your team? You can download our resource here.
4 Things to Look for in 401(k)
1. Ease of Administration
As someone who runs a small business, you probably already spend more time than you’d like on tasks such as payroll and benefits administration. You’ll want to find a 401(k) provider who makes those tasks simple.
401(k) plans are funded through deductions from employee payroll, so employers have to update their provider after every payroll cycle to make sure the right amount of money is taken out of employees’ paychecks and added to their retirement account.
Employees are also typically able to change their contributions at any time, which is more information that you’ll need keep track of. If you’re matching employee deferrals, that can quickly add up to a lot of hours on administration each time you run payroll.
Look for a provider that optimizes 401(k) administration processes for you, including an interface to manage your company’s 401(k) quickly and accurately. An integration with your payroll company is an ideal solution, but if that’s not an option, make sure your provider can accept a batch upload file of payroll information.
Get the down low on 401(k) and other employee savings.
2. Ease for Employees
It’s not just benefits administrators who need a 401(k) provider that’s easy to use — employees will appreciate it as well. Employees will want a simple interface for updating their deferrals and monitoring how their account is performing relative to the market.
Additionally, look for a provider who publishes educational content for your employees. Saving for retirement is an important topic, and you want to give your team the right resources to make the best choices for their future.
3. Fewer Fees
Every 401(k) provider needs to charge for their services, but not all fees are created equal. Shop around to make sure that you’re getting the best deal for your money. Fees typically vary according to the total value of assets in the plan, so small businesses stand to see higher rates compared to large organizations.
Even a percentage point less in fees can save hundreds of thousands of dollars over a lifetime. A helpful way to compare is calculating the expense ratio: “Take the total annual investment fees paid by all participants and divide that amount by the annual average dollar balance of all the assets in the plan.”
Don’t forget to consider some of the one-time fees you or your employees might face for closing their accounts or rolling over to another provider.
4. Multiple-Employer Plans
Finally, you should consider whether a multiple-employer plan (MEP) is the right choice for your business. If you’re new to the concept, Slavic 401(k) provides a great introduction. The basic benefits of grouping your assets with those of other businesses include handing off some of the liability and gaining access to top tier plans typically available to large employers. As part of an MEP, you’re also exempt from the annual audit which can can cost thousands of dollars.
Offering 401(k) benefits is a great recruiting tool, so you shouldn’t let the logistical work hold you back from bringing this benefit to your employees. In the end, both parties will be happy with the mutually beneficial results.
Justworks Can Help
Justworks delivers affordable access to benefits for small businesses such as 401(k), medical, dental, and vision.We’ve even integrated our preferred provider, Slavic 401(k), into our app, so you can manage your benefits on a straightforward digital platform. You can learn more about us here.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.