The Costs of Doing Business

When you first opened your business, you may have had to do without a lot of things you wish you could have had. These may have included better or larger quarters, the ability to offer more or better goods or services, and more employees to spread out the workload.

Let’s imagine you have an accounting firm. Maybe you passed your CPA exam and joined a large, busy firm where you worked long hours for little pay — helping rich people get richer. Perhaps you longed for a bigger slice of the pie, so after you got a few years of experience under your belt, you struck out on your own. Your business may have been just you, working in your garage with your mom’s help answering the phone. But after a period of time during which your clientele grew through word of mouth about your top-notch services, you were able to hire a full-time administrative assistant and some junior-level accountants.

At that point, offering benefits like health insurance and a 401(k) plan may still have been a dream to you. Your priorities at the time likely included a clean, nicely furnished and well-kept office, because it’s important to make a good impression on your clients. Additionally, you probably interviewed your employees carefully, choosing only the ones who were the most capable and worked well with your clients. You had to decide how much compensation to offer your employees. Too much, and it eats into your bottom line; too little, and they’ll leave to work for a competitor.

It’s the same process when you’re deciding what other benefits to provide. If other accounting firms offer 401(k)s and PTO and you don’t, you won’t get the best employees. You’ll get the leftovers.

Who Offers Matching 401(k) Contributions?

According to a study done by Plan Sponsor Council of America, a nonprofit trade association that supports employers that offer retirement plans, 98% of employers who sponsor 401(k) plans offer some type of matching contributions. The average matching contribution percentage is 100% up to between 4% and 6%, although some newbies may start at 50%. 

You may think you can’t afford that, but if you think about it, you really can’t afford not to offer it. Why?

1.       If 98% of businesses offer 401(k) matching contributions and you don’t, this will make you look stingy at best and financially unsound at worst. Potential employees may worry that a business that can’t afford matching contributions may not be around much longer.

2.       Not only does offering a 401(k) program attract better talent to your small business, it also encourages your employees to remain loyal to your company. That’s because employer matches are usually tied to a vesting schedule, often between two and five years. If your employee leaves before they are fully vested, they lose some of the money that you contributed to their 401(k). So employer matches and a reasonable vestment schedule help to encourage employee retention.

3.       Another reason employers want to offer matching 401(k) funds is that these contributions are tax deductible. How much your business is eligible to deduct is based on a number of factors outlined by the IRS. You can’t help but feel good knowing that the IRS deems your matching contributions tax deductible — plus, you’ll improve your reputation in the community and save money at the same time.

4.       Down the road, you may want to consider that as the company’s owner, you and any highly compensated employees you have would not be able to save as much in their 401(k) as they could with matching contributions in place. And that’s not just because the matching funds would otherwise be absent — it’s due to federal rules regarding how much owners and highly compensated employees are allowed to contribute in relation to other employees. Offering matching contributions up to a certain percentage provides an incentive for employees to save more — so you can save more too.

The good part about deciding to offer matching contributions to your employees’ 401(k) accounts is that you can start small and grow with your business. Maybe at first, you will opt to match 50% up to 3%. As your company gains more financial flexibility, you may be able to offer 100% up to 6%. Don’t make the mistake of thinking workers and competitors will not know which company offers what — topics like this are always popular for discussion, and not just at happy hour after work, but on social media as well.

For more information on how easy it is to start and manage a 401(k) plan at your company, contact 401GO today.

The post 4 Reasons You Should Offer Matching 401(k) Contributions appeared first on Fast and Affordable 401k for growing businesses.

So affordable, in fact, they can be game-changing for the little guys, and allow them to compete in the job market as never before. This is an absolute necessity for businesses in some states where retirement plans are mandated.

Start-Up Fees

401(k) providers typically charge a one-time setup fee of around $500-$1500. This covers the time it takes to create the plan documents, add participants to the plan, and prepare for upcoming administration.

401GO setup fees are zero.

Employers must also take time up front to educate employees about the new plan, and help them either get set up, or opt out. Plan providers can usually provide employers with detailed materials, but the dissemination of these materials, as well as answering questions, is handled by the business owner or HR manager.

The 401GO platform automates the setup process for both employers and employees, so it takes very little time for anyone. This technology allows us to offer setup at no cost whatsoever.

Employers should also note that they can take advantage of a startup tax credit of up to $500 for 3 years, which can help offset initial costs.

Management Fees

The cost of the day-to-day running of a 401(k) plan is typically broken into three categories:

• Administration: this includes preparing and filing records, accounting, compliance testing, sending notifications, providing customer service, and so forth.
• Investment: expenses associated with managing the plan investments are charged to the participants (not the employer) as a percentage of the total assets in the fund. 
• Service: it may cost extra to take a hardship withdrawal or loan, or to perform a profit-sharing calculation.

These fees can be tricky to understand and compare, because the tasks may be split between different parties, and because each provider may have unique methods of calculating fees. 401GO is a bundled solution, meaning we serve as recordkeeper, TPA, and custodian. 

To get a complete chart of comparison points, see our buyer’s guide.

Contribution Costs

Depending on the type of 401(k) being used, contributions may or may not be required.  Although most employers do choose to offer matching funds, we find many small businesses are surprised to find this cost to be lower than expected. 

It’s important to note that while this is a real cost for employers, it is not a cost that varies based on the plan provider. It only varies based on the plan design, number of participants, and the amount those participants contribute. 

Typically contributions are tax deductible, so many employers are happy to give this money to their employees and reduce their tax burden.

Other Fees

While other fees are not always hidden, they can be easily overlooked and give employers a nasty surprise if they are not prepared. Before investing in a new 401(k) plan, ask about these possible additional costs:

• Administration fees: for rollovers, loans, transactions, changes, or withdrawals
• Investment and advisory fees: for investment design, execution and monitoring, and advising participants
• Trustee service fees: for assuming some liability and holding plan assets 
• Recordkeeping fees: tracking participation, individual account information, and amounts invested in each fund
• Reporting fees: for preparation, filing, and assumption of liability for the accuracy of the reports
• Termination fees: for closing a plan and transferring assets to a new provider

401GO has designed pricing to be affordable. See our pricing page for a full list of services included in our price.

The Savings Are in the Technology

Technological advances have made 401GO automation possible, and automation is the key to keeping costs low. 

With automation, the setup process that previously took weeks and required professional advice can now be done in minutes with no help at all. Automation ensures reports are accurate and filed on time. Automation monitors plans for compliance. Automation eases burdens for employees, too, increasing participation rates and contribution amounts. Automation even offers financial education and advising to help all participants build their wealth and become financially independent.

Because these jobs no longer require much human attention, 401(k) plans are vastly more affordable than they used to be.

The only thing we don’t automate is relationships. Our world-class support team offers live help from human beings when you need it, so you are not frustrated by technological problems you can’t solve! 

6 More Ways 401GO Helps Small Businesses

Affordability is just one way online platforms like 401GO help small businesses. Read more about the benefits of automated 401(k) plans, or start a new plan today.  

The post What Does a New 401(k) Plan Actually Cost? appeared first on Fast and Affordable 401k for growing businesses.

Since retirement plans weren’t very practical for small companies until a few short years ago, many business owners haven’t developed their 401(k) muscles.

Before you get started shopping, it’s best to understand a few big issues that can trip you up down the road, so you can do your best to avoid them. We’ve grouped these questions into categories.

Responsibility and Compliance 

Q1: What 401(k) services do you provide?

The DOL considers plan sponsors (business owners) to be ultimately responsible for their retirement plans. But, since most are not experts in 401(k) maintenance and compliance, they are able to hire out these services. Professionals have the expertise to advise you so that you have confidence in your plan decisions.

In addition to a trustee, all 401(k) plans need someone to carry three types of responsibility: the recordkeeper, the administrator (TPA), and the custodian. These can be three separate services, or they can be bundled together in different configurations.

The recordkeeper is responsible for making sure that records are accurate and available. They are the bookkeeper, tracking who is participating, who is eligible to participate, what investments the participants own, and all the money that goes in or out. Much of this work can be better performed by technology.

The TPA (third-party administrator) typically provides annual services, such as nondiscrimination testing, preparation of the 5500 form, reviewing distribution requests, and making amendments to the plan document. Most plan sponsors appreciate having a 3(16) administrator to perform specific tasks above what the TPA does. These services vary from provider to provider. (More on these issues in later questions.)

The custodian is responsible for holding the plan assets. This is often provided by a bank/trust, and cannot be held by the TPA or recordkeeper. It’s important the custodian is reputable and trustworthy, since they safeguard the funds. 

Many companies also engage an investment fiduciary to ensure the investments are sound and reasonably priced. Fiduciary responsibility exists at different levels. A 3(38) fiduciary makes investment decisions and implements them, while a 3(21) fiduciary makes the same investment decisions but only offers them as recommendations to the plan sponsor. Without a fiduciary, the burden of selecting investment options falls on the employer.

Although all the responsibility of being a plan sponsor cannot be delegated, these parties can take a substantial amount of the burden off of your shoulders. Ask any provider you speak with what they’ll do, and more importantly, what they won’t do.   

401GO is a bundled solution, meaning we provide all these services. We are a recordkeeper and TPA with built-in 3(16) administration and 3(38) fiduciary services. Our partner Matrix Trust serves as the custodian. If you have an advisor that wants to serve as the 3(38) fiduciary, we’re happy to work with them.

Q2: Do you monitor for noncompliance issues? How often and how is it done?

The IRS requires all 401(k) plans to be tested for compliance annually. These tests will look at whether the plan favors highly compensated employees or business owners over other employees. It is easy for small companies to have trouble with this noncompliance testing, so it’s important to have a provider that can help you watch for problems in advance.

If your company fails the nondiscrimination testing, it may require additional contributions to be provided, or the return of some contributions, or some other changes that could be difficult, expensive, or embarrassing for employers. 

Many providers offer testing and plan review annually because it would be far too expensive to do it more frequently. With our automated platform, 401GO offers constant monitoring, so that problems can be caught while they are small and handled quickly throughout the year.

Q3: Do you provide and manage 401(k) notifications to employees?

401GO will handle all employee notifications, although as the plan sponsor, you are responsible to provide an accurate and up-to-date list of all employees and their contact information. For most employers, this is easily accomplished. Since we offer integrations with most major payroll and HR systems, we can automatically import new employees to reduce administrative hassle and potential liability. 

The government requires certain types of notifications to be made at certain times, and our automated platform ensures that happens correctly.

Q4: Do you calculate employer contributions? Do you track eligibility and enrollment?

These services are commonly needed, but not always provided, so the burden sometimes falls on the employer. While these tasks are not necessarily difficult, they can pose a problem for businesses in two ways.

Ongoing administration tasks, even simple ones, can present hassles, complications and a time cost that many employers can’t—or don’t want to—carry. And secondly, errors can compound the difficulty and strain the relationship with employees.

Because 401GO functions as both a TPA and a 3(16) administrator, we provide these services. We’ll track eligibility and enrollment, send out employee notifications at the proper time, as well as calculate and remit the employer contributions on your behalf. And, because our platform is fully automated, errors are uncommon.

Q5: Can you take over an existing plan? How long does the transfer take?

Any provider would be happy to take over an existing plan, 401GO included. But these conversions can be tricky, because they involve a review of your plan document, possible amendments, and a blackout period where participants don’t have access to their accounts because of all the manual work that needs to be done, as well as a transfer of funds. 

At 401GO, we do cash conversions, which gives participants access to the new plan right away, so they can continue contributing while they wait for existing funds to transfer. While some providers take months to complete a conversion, ours are typically completed in a matter of days, and the switch to the new plan is nearly seamless.

Technical Aspects

Q6: Do you provide an ERISA bond? What is the cost?

An ERISA bond, or fidelity bond, is insurance against losses caused by fraud or theft, and it required for all 401(k) plans. Some 401(k) providers offer a fidelity bond at an additional cost, but many expect business owners to purchase one separately. 

401GO includes an ERISA bond with our GO-Plus plans. We can also recommend a good bond provider, if you prefer to purchase it separately.

Q7: Do you prepare, sign and file the 5500 report?

Form 5500 is a report that is required to be filed annually with the IRS. It ensures that your plan is complying with all 401(k) regulations. It’s important to understand who will be preparing this document, and whether they will have accurate information. 

You’ll also want to know who is signing it, because the signer has responsibility for the accuracy of the report. Many 401(k) providers will prepare the document, but most will want the plan sponsor to sign it. No matter who does the signing, it’s important that you review the form carefully and ensure it’s correct before it’s filed.

Filing of this form happens electronically, and you’ll want to retain proof of the filing.

401GO prepares, signs and files the 5500 and other associated reports at no additional cost. If the IRS finds any irregularities or discrepancies in the report, the liability is on us, not on you. Fines are substantial and they are inflation-adjusted each year, so it’s easiest to avoid them.

Q8: Do you provide for account rebalancing?
Rebalancing ensures that if any funds have substantial shifting in value, adjustments are made to keep the investment ratios the same. Most providers offer scheduled investment rebalancing, usually quarterly. This doesn’t make sense, because the market is constantly moving. 
In this area, automation is more effective than human monitoring, because it removes not only errors, but also emotions and opinions from the process. With our advanced automation, 401GO provides rebalancing right when it is needed.

Q9: Do you provide integration with our payroll or HRIS provider?
401GO offers integration with ALL providers. We have many very reliable integrations with major payroll providers. If we don’t have an API integration with your payroll company, our True360 service will fill in the gaps.

Cost and Setup

Q10: How long does 401(k) plan setup take?

For traditional 401(k) providers, the answer is 6-8 weeks. Many plan sponsors work with as many as four separate service providers, all with their own questions, forms, documents and fees. It’s difficult to manage the communication between all the involved parties, and if something goes wrong, it’s even more difficult to know who is at fault. 

All this complexity is unnecessary for most small businesses. With a few questions to understand your specific situation, 401GO is able to recommend a design that will work well for you. Our in-house experts review the plans to ensure you are comfortable with the final product. We can accomodate any plan design but find most small businesses go with our recommended plans.

This is how 401GO is able to offer a new plan in just 15 minutes. There is no reason a small business should spend 8 weeks on plan design and implementation when the same result can be accomplished in less than a day.

Ask these questions:

• How long before the plan document is ready to be signed? 
• How long until a login and account access is provided? 
• How long before employees can begin setting up their accounts? 

You won’t find a platform with a faster setup process than 401GO. At the end of your 15-minute setup process, you’ll have a plan document, a payroll integration (if applicable), an account login, and automatic emails will be sent to employees within just a few minutes. Employee setup takes only about 5 minutes, and then they’ll be up and running too!

Q11: What will our 401(k) plan cost?

It’s worth it to make a comparison list of the different fees associated with a 401(k) plan. Some fees associated with these plans can be hard to spot or understand, and some plan sponsors have even found their plans to cost more than they are worth.

Start by comparing the most obvious fees: monthly fees, startup fees, and AUM fees. Be sure to consider what your advisor will charge, if you are using one, because this is sometimes separate from the plan provider charges. 

Also look closely at the cost of the investment options you select. These have their own fees, some of which can cost a substantial loss of potential earnings. 401GO offers many high-quality, reasonably priced funds, at an average expense ratio of about 0.08%.

Q13: What other costs should I be aware of?

Some providers charge for a wide variety of additional services, and all these fees can add up. Ask the providers you speak to what they charge for:

• Plan document preparation
• Plan document amendments
• Report preparation
• Plan termination
• Loan establishment and maintenance
• Distributions
• Profit-sharing calculations
• Compliance testing

Most companies will charge for all of the above, but the fees vary quite a lot. 401GO does not charge for report preparation, and we don’t charge a termination fee. Termination fees are especially sneaky, since many employers aren’t aware of them until they are frustrated with their provider and ready to make a change. They’re also notoriously expensive, sometimes costing as much as $2000-$3000.

401GO does not charge transaction fees to participants. Loans, withdrawals, distributions and so forth are included in the cost of the plan.

Perks and Extras

Q14: Do you provide live customer support and a dedicated account manager?

Many modern platforms offer automation and great pricing, but few combine that with excellent customer service. 401GO provides support for both employers and employees from a live human being. Plan sponsors (employers) have a dedicated account manager who knows them and their needs. Our support staff are highly trained, able to solve problems without escalation, and U.S.-based.

Just read our reviews to see how valuable our customer support has been to our clients. This can be a major factor for many companies. All retirement providers make errors from time to time, but it’s important to know those errors or problems will be handled by support staff in a timely way.

Q15: Do you offer financial education and personal insights for participants?

401GO has created a whole course of educational material for users to learn from. This is aimed at helping those who need it most to improve their financial independence.

Additionally, our suite of financial wellness tools offer personalized insights to participants to help them make smarter budgeting decisions. These insights have been proven to be quite valuable to those who take advantage of them.

Download Our Handy 401(k) Buyers Guide

Download our handy 401(k) buyers guide

Your Partner in Retirement

The 401(k) industry is built on bureaucratic regulations. It’s inherently complex, with frequent changes and updates. But it doesn’t mean a small business has to take on the burden of all that complexity alone. 

The modern 401(k) uses these three valuable tools to vastly simplify the process and improve the outcome:

1. Automation
2. Bundled Services
3. Excellent Customer Support

When you’re shopping for a retirement plan, notice how these three elements effect both the quality and the price of the benefit you can offer.

For any additional questions, reach out to 401GO anytime. Our team is happy to answer any questions!

The post Shopping for a 401(k)? Ask These Questions. appeared first on Fast and Affordable 401k for growing businesses.