In order to get something out of your retirement plan, you have to put a little into it first. And just like with any company benefit, there are some costs associated with your 401(k) plan. We’re now in our second week of discussing what those costs are.
Last week, we discussed the costs pertaining to the legal side of 401(k) plans, which is handled by your Third Party Administrator (TPA). Now, we’re onto something a little more daunting: Taxes. W-2s. Reporting to the IRS.
In short, you’ve gotta have someone looking after the numbers for your business. And oh, the many numbers there are! There’s employee money to keep track of, of course, but then what about the employer money? Then, there are the gains/losses on the funds that need to be entered each day. Not only that, but there’s year-end reporting, calculation of vesting, numbers reported back for IRS tax forms and compliance testing, etc. The list certainly goes on and on.
The numbers are just as important as, if not more than, the legal aspects.
In the 401(k) world, the individual or company that handles all of this for you is known as the Record Keeper.
In many cases, usually with large companies, recordkeeping services are handled by the same institution that offers the funds in a plan and keeps tabs on their value each day. The truth of the matter is that this function may end up costing a small business more than you realize.
To help keep your costs low, here are some things a small business should look for in a Record Keeper:
*A two-in-one bundled solution – If this is your first 401(k) plan, it is particularly a good idea to get your administrative and recordkeeping services from one provider.
*No minimum balance – The vast majority of Record Keepers require a minimum balance in the 401(k) plan before they’ll even start the work. Be sure to look for a provider that isn’t focused on how much money you have in your plan.
*A provider with the small business in mind – You’ll be better off with a provider that caters to other businesses of your size. Not only will they better understand the needs of your business, but costs are more likely to be lower.
We’ve now covered the costs of your plan from the front end with administration and recordkeeping service. However, there’s a third cost: the funds. This isn’t just an individual’s cost for choosing one expensive fund over another. There’s more to it than that. Much more.