Ubiquity Guide to Choosing a 401(k) Provider

Author: Siân Killingsworth / 9 Jan 2023 / 401(k) Plan Information

Your choice of a 401(k) provider affects both your and your employees’ futures. Choose the right provider for your small business needs, and your employees can enjoy a secure retirement. Make the wrong choice, and not only can your employees end up with less funding for retirement than anticipated, but you might lose out on significant tax benefits.

Evaluate Your Company’s Needs

For sole proprietorships and solopreneurs, an Individual 401(k) plan like the Single(k)® from Ubiquity offers a simple, low-fee plan to help individual business owners start saving right away.

For businesses with employees other than the owner and the owner’s spouse, a group plan will meet your needs. Most providers offer several types of 401(k) plan so you can select the one that offers the right combination of flexibility, support, and cost.

Ease of Setup and Use

Some retirement plan providers expect business owners to leap administrative hurdles that eat up a lot of time and energy. It’s important to find out how much effort setting up a 401(k) requires, and what you need to do. Look for a 401(k) plan that is simple to set up and intuitive for your employees to use.

Questions to ask:

• Does the provider offer automatic enrollment?
• Are there educational resources for employees and business owners?
• Is there an online portal to easily manage the plan?

Identify Your Employees’ Needs

If problems arise with their 401(k), your employees need to have these issues addressed promptly.

Questions to ask:

• Does the 401(k) provider offer good customer service, including U.S.-based support by email and phone?
• Does the plan offer employee education demonstrating its 401(k) value? Employees need to understand how the plan works and its benefits.
• Finally, does the plan offer employees individualized investment and plan guidance?

A solid 401(k) plan not only helps you keep good employees, but it also goes a long way toward attracting talent.

Available Investments

Employees want diversified investment options so they’re not putting all their eggs in one basket. Help them reduce risk by offering a wide range of choices.

Questions to ask:

• Does the plan offer mutual funds?
• ETFs?
• Direct access to stocks?

Fiduciary Risk

Remember that you bear certain fiduciary responsibilities upon offering a 401(k) to employees. You can avoid legal liability if you make a good choice in 401(k) provider selection.

Your fiduciary responsibility may include plan investment selection and monitoring, diversification for loss mitigation, and benchmarking. The latter concerns evaluating and reviewing the retirement plan regularly.

Questions to ask:

• Do you want the plan provider to recommend plan investments?
• Do you want them to actively manage the investments?
• Is there a type of plan that passes fiduciary responsibility to the plan provider?

Compliance Support

Legal requirements for 401(k)s are complicated. Your plan must remain compliant with the IRS and DOL, and that means ensuring several annual compliance tasks are completed. These include:

• Preparation of an annual Form 5500 with the DOL and IRS
• Providing annual sponsor and participant notices
• Annual non-discrimination testing to show that lower-paid workers are not discriminated against in favor of highly compensated employees

Fee Transparency

When considering retirement plans for your small business, fee transparency is crucial. High administration fees and high-cost funds are obstacles you want to avoid.

Your 401(k) provider must make their fees completely clear for every level of service. Neither you nor your employees want unexpected fee surprises. For instance, automatic rebalancing of the portfolio adjusts holdings to retain the desired asset allocation. Most 401(k) plans do not charge for this service, but there are some that do.

Some providers are hiding extra fees in plain sight by making them sound ordinary or innocent. A great example of this is a fee called employee pricing. Sounds innocent enough, right?

But this employee pricing is really a fee based on the total amount of money in your account, otherwise known as a percentage fee. This means the fee you pay gets bigger as your money grows…which it likely will do, based on how the stock market has performed historically over a 20-30-40-year time period.

In industry jargon, an employee pricing percentage-based fee is really an asset under management (AUM) fee. And it can erode your nest egg in a sneaky way. Not so innocent, now, is it?

Find out which services are included in the basic fee and which are add-ons. Ask about any annual fees beyond your base charges.

Questions to ask:

• What are the fees? Is there an AUM or percentage-based fee?
• Are there flat fees?
• Which fees are paid by the employer, and which fees are employees expected to pay?

Make Comparisons

When it comes to small business 401(k) plans, due diligence requires that you compare various plans and determine the best ones for your needs. Consider providers specializing in small business retirement plans, rather than providers whose primary focus is insurance or payroll. Compare each aspect of the various plans carefully for a thorough understanding of service levels and costs.

For more information about Ubiquity 401(k) offerings, contact us today.