The Benefits of Flat-Fee 401(k) Plans
Author: Siân Killingsworth / 3 Feb 2023 / 401(k) Plan Information
If you’ve looked into setting up a retirement plan for your small business, you probably know the biggest challenge owners face: It can be expensive. Fees and administrative costs can add up quickly, which means that many businesses choose not to offer a 401(k) or other retirement savings plan for their employees. Flat-fee 401(k) plans, sometimes called “no-load” or “low-fee” plans, are designed to solve this problem.
What is a flat-fee 401(k) plan?
We’re glad you asked. A flat-fee plan will charge you a single, unchanging fee each month, regardless of how much money participants in your plan save every year. And if this price transparency isn’t enough, here are some other reasons a flat-fee 401(k) could be right for your small business.
They have lower costs
One of the most significant benefits of a flat-fee 401(k) plan is its cost structure. Traditional 401(k) plans can have hidden fees and expenses for recordkeeping, administration, and investment management. (And these fees can add up fast.)
But with a flat-fee 401(k) plan, what you pay is transparent and predictable, so you can rest assured that your small business won’t be hit with unexpected charges. This also means employees can be confident that their retirement savings won’t be eroded by high fees.
In addition, flat-fee 401(k) plans can be much more affordable for small businesses than traditional 401(k) plans. A flat-fee 401(k) plan may cost a small business owner $1,500 per year, while a traditional 401(k) plan with the same number of employees could cost upwards of $10,000 per year.
Transparency is a good thing
In addition to the obvious benefit of not having to worry about your 401(k) fees, flat-fee plans also provide transparency and predictability. You can see exactly how much you’re paying for your plan, which makes it easier for you to budget for expenses like this in the future.
Moreover, if the size of your small business changes, the cost associated with your plan will change as well. Even if you face changes in employee count over time, you’ll always know the impact those changes will have on your bottom line.
Avoid hidden fees
At many 401(k) plan providers, the pricing is intentionally confusing, and some companies use industry jargon that doesn’t sound like a fee… but it sure is. Some sneaky examples you should look out for:
- Employee pricing
- Assets under management (AUM) fees
- Percentage-based fees
All of these fancy-sounding terms boil down to the same thing: they are fees that increase as your retirement savings grow. The more you save, the more you pay. That doesn’t make a lot of sense if you’re trying to maximize your savings. But with a flat fee, it doesn’t matter how much money is in your retirement account – $5,000 or $5,000,000. You will still pay the same fee.
They’re easier to manage
Finally, paying a single, up-front price means there aren’t any surprises when it comes to budgeting and forecasting expenses. Bonus: You’ll also have less paperwork because no hidden fees or charges could crop up unexpectedly.
Flat fees are charged by Decimal, Inc. for recordkeeping and administrative services. Third-party service providers may assess asset-based fees to customers. Plan Sponsors are advised to review all service agreements with providers (e.g., investment advisors, custodians, broker-dealers) to evaluate total plan costs.