Retirement plans, like the 401K, are important tools for employees to secure the future of their retirement. As they work, they can save for their retirement with little hassle. Over the life of the plan, you’ll have to manage the expenses, so here’s a guide to get started.
Fees and Legal Compliance
When you choose a service provider for your 401K, that entity or individual must comply with the Employee Retirement Income Security Act of 1974 and its standards. One of the most important stipulations is that you act completely in the best interests of the plan’s beneficiaries. Tracking the fees and expenses of the plan is a major element in looking out for your employees’ interests, and it’s an ongoing process.
Pick Your Services and Customized Options
Have you consulted with your employees and board members regarding what is desired from the 401K plan? Undoubtedly, you’ve already talked budget, but now you need to discuss value. Just like with your daily operations, it’s best to know what you need and what you want. Prioritize any special services and extras so you can go into negotiations with realistic expectations. Common extras and services might cover:
• Report frequency
• Types of reports
• Communication responsiveness and methods
• Availability of educational materials for plan participants
• Participants’ investment transfers availability/frequency
• Level of responsibility on service provider
• Internet trading options
• Phone transfer availability
• Loan options
12-Step Plan Evaluation
When you are thinking solely about the fees and expenses related to your 401K options, use these 12 steps as a guide:
1. Give all service providers complete, thorough and identical details regarding your 401K plan.
2. Decide on the features and services you need. If you are in a more negotiation type process, prioritize your features and services.
3. Divide expense and fee payment responsibilities between you, your employees and shared costs.
4. Identify which expenses and fees are deducted from returns versus billed directly to the plan.
5. Identify the services included in the base price and which are add-ons.
6. Identify the exact fees associated with any service customizations and add-ons you are considering.
7. Understand which investment options have high or low fees.
8. Understand the restrictions and penalties involved with the plan. For instance, is there a charge for early termination with the selected provider?
9. Know the options for how you are charged.
10. Determine whether the arrangement helps your employees make informed decisions regarding their accounts and investments.
11. Consider asking the providers you’re vetting for uniform fee details of all expenses charged.
12. Understand the type of regular reports the provider will give you and if they contain all necessary information for effective service and investment monitoring.
Notes for Moving Forward
When you are choosing a service provider, you’ll have to make your decision on more than just the finite cost of the program. You should also consider the value of the program to your employees. There are many factors into attracting and keeping top talent in your company, and a valuable 401K option can be compelling. When you’re making your final decisions, keep these notes in mind:
• Gather as much information as possible so you can make an informed choice.
• Fees and expenses are only one piece of the puzzle.
• Each service will have a fee.
• Compare services provided with overall plan cost.
• Consult with multiple service providers to ensure you are getting the best value and price.
• Better doesn’t always mean cheaper.
• Ask your service provider to be explicit about what services are included in the estimate.
• Be sure to consider how fee and expenses will impact your employees’ retirement savings. As you can see, you have a great deal of control over the fees and expenses related to your 401K plans. The trick is to balance the value to your employees and the cost to the company. With this guide, you can get jumpstarted on picking the perfect plan.
The content on our website is only meant to provide general information and is not legal advice. We make our best efforts to make sure the information is accurate, but we cannot guarantee it. Do not rely on the content as legal advice. For assistance with legal problems or for a legal inquiry please contact you attorney.