What Employers Need to Know When Choosing a 401(k) Provider

Cost

Cost is a major factor for small businesses, whether this is the company’s first plan or the business is seeking a more affordable provider. In years past, 401(k) plans were written exclusively for big corporations. Today, there are many more options, but all small business 401(k) plan providers are not created equal. Fees may be charged for assets under management (AUM), per-participant, per-transaction, or assessed at a flat rate.

Ideally, a small business will seek a plan provider that:

• Charges a flat fee — and does not charge AUM or per-participant fees.
• Transparently discloses all costs and services — with no hidden expenses.
• Offers investment advice, audits, and other services a la carte, so clients only pay for what they need.

Ubiquity offers a variety of tiers to suit the needs of small business clients, with  individual or group HSAs can be added to the plans as an additional incentive.

Ease of use

Next to dollars and cents, time is the most precious resource for a small business owner. Most employers prefer their plans to operate as seamlessly as possible, without spending countless hours trying to figure out the plan requirements and features.

The best small business 401(k) providers offer plans that:

• Can be set up seamlessly without mountains of paperwork.
• Fully integrate with payroll, HCM providers, and programs the business already uses.
• Feature auto-enrollment, making it easier for employees to save, and employers to earn tax credits.
• Provide custom portfolios, investment tools, and financial education material to maximize savings.
• Take fiduciary responsibility for compliance, leaving one less headache for employers.

Auto-enrollment is the gold standard for ease of use. A good 401(k) provider can get participants on board quickly and easily to boost your plan’s participation rate and earn your small business an extra $500 annual tax credit¹ for the first three years of a new plan.

Flexible Investments

Prepackaged investment portfolios are not always the best fit for employers and employees. The best small business 401(k) plans allow you and your employees the widest choice of investment options, including:

• Money-market funds
• Core bond funds
• Large-capitalization funds
• Small-capitalization funds
• International funds
• Treasury Inflation-Protected Securities funds
• High-yield funds
• Real Estate Investment Trust funds
• Commodity funds
• Emerging markets funds
• Mid-capitalization equity funds

Choose a 401(k) provider that steers you away from funds with heavy commissions, sales loads, or 12b-1 fees. Ideally, small business plans will include:

• Open-trading tools that make it easy to select and manage specific investments.
• Access to a self-directed brokerage window to open up many more investment choices.
• Available turnkey investment lineups for those who don’t want to actively manage.
• Opportunity to change fund lineups upon employer or employee request.
• Freedom from prepackaged options that dictate how the plan’s money is invested.

Plan Design

There is no such thing as a one-size-fits-all 401(k) plan. There are six major considerations in plan design: eligibility requirements, compensation excluded, employer contributions, vesting, distributions, and loans.

Here are some questions to ask a 401(k) provider:

• Can plan participants make Roth contributions?
• Can employees take loans or hardship withdrawals from their plans?
• Can 401(k)s rollover into another plan?
• Is there a flexible vesting schedule?
• Is fiduciary oversight included with the plan?

Plan design flexibility varies from provider to provider. Businesses will want a plan that can be tailored to their specific business goals, be it the ability to make discretionary contributions, accumulate greater savings, avoid paying taxes in retirement, or access loans borrowed against the 401(k).

Employee Experience

The right plan provider will help you gain a competitive advantage in attracting and retaining talent. Financial wellness tools help workers save enough for retirement, ease their anxieties, and improve their workplace productivity as a result.

The best 401(k) plans come with:

• Employee educational materials
• Auto-enrollment
• Employee portals
• Optional investment advisory services
• Employee-dedicated phone, email, and chat customer support

Employer Support

When you have questions or concerns about your plan, you need a 401(k) provider who is there with immediate, effective support.

What if profits are down and the employer needs to scale back their offerings mid-year? What if the vesting schedule isn’t retaining staff as well as it could? What if employees aren’t happy with the investment portfolio performance?

In looking for a 401(k) provider, employers can search for employee support that includes:

• Different levels and types of support
• Online and phone customer service, rather than just online chat
• Plans backed by staff whose sole job is employer/employee support
• Consultations with financial experts to help strategize and solve retirement savings challenges

1 Eligible employers can receive a tax credit of up to $5,000 over three years for starting a 401(k) plan, subject to IRS requirements. Employers with 50 or fewer employees qualify for a 100% tax credit, while those with 100-50 employees can receive a 50% tax credit. Additional eligibility criteria include having at least one non-highly compensated employee, an employee who received at least $5,000 in compensation in the preceding year and having substantially the same employees receiving contributions or benefits from another plan sponsored by the employer, a member of a controlled group, or a predecessor within the three tax years prior to becoming eligible. Employers with automatic enrollment plans can receive an extra tax credit of $500 per year for a three-year taxable period.