How Much Does It Cost to Set Up a 401(k) Plan for a Small Business?

A 401(k) plan provider charges for the setup, administration, and ongoing maintenance of your plan.

Costs include:

• Plan setup

  To get started, you’ll need a written plan document, a trust for plan assets, a recordkeeping system, and informational materials to distribute to all eligible employees.
  Administration – Along the way, essential 401(k) plan services will include: keeping track of participating employees, tracking how much money is invested, and providing employer/employee customer support.

• Miscellaneous

  Other administrative tasks include rollovers, loans, and withdrawals — for a fee. Some plan sponsors charge employers for termination when closing a plan down.

• Trustee service

  In addition to a plan administrator, you will also need a fiduciary trustee, broker, or custodian tasked with choosing plan funds, managing entity assets, and executing investment decisions, as directed by plan participants, plan sponsors, or investment managers. You may require the services of a 401(k) investment advisor who assists with plan design, fund monitoring, and financial consulting.

Who pays the 401(k) fees may vary. Employers often pay the hard-dollar expenses for setup and routine maintenance, while the participants often pay asset-based fees for fund performance or miscellaneous fees for certain services.

No matter who pays, you want to keep costs to a minimum. Understanding the four different fee models of 401(k) plan providers will help you do just that.

Small business 401(k) plan providers may charge fees in a variety of ways:

• Asset-based:

  What you pay is based on the amount of total assets in the plan, from 0.08-4%. Asset-based charges are taken to cover investment advice and custodial incentives.

• Per-participant:

  What you pay is based on the eligible employees, typically $2-$750/month/person. Per-participant charges are taken to cover recordkeeping and plan administration.

• Transaction:

  What you pay is based on the number of services, ranging from $0-$70+/transaction. Transactional charges are taken to change plan funds or borrow a 401(k) loan.

• Flat fee:

  You pay a fixed dollar amount that does not vary, regardless of plan size or services. Fixed fees cover the cost of ongoing recordkeeping, administration, and maintenance.

Some providers charge based on more than one model. So, for instance, a plan with less than $1 million in assets might be charged:

• A $500 to $3,000 initial setup fee
• Ongoing maintenance charges of $800 to $1,000 in annual administrative fees
• $15-$40 per-participant charges on a quarterly basis
• PLUS hourly administrative service fees for asset rollover, investment advice, and compliance

If that sounds like a lot of nickel and diming, you’re right – it is! But it doesn’t have to be that way.

To get the best deal possible, always read the fine print about 401(k) fees and know what you’re paying upfront. Ubiquity is the only small business 401(k) plan provider that has featured a straightforward, flat-fee pricing model with NO AUM or per-participant fees, since 1999.

With small business 401(k)s for as little as $97/month, you can have all of the administrative work handled by a capable team of professionals. Unlike other providers that force you to choose a particular custodian, you are free to work with whomever you choose, so you have maximum fund flexibility and plan stability should you ever decide to change brokers down the road. Don’t forget there are big tax benefits that can help offset the cost of a 401(k).