The Frugal Fiduciary Small Business 401(k) Blog
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On August 31, President Trump signed an Executive Order on Strengthening Retirement Security in America. In the order, the President made it the “policy of the Federal Government to expand access to workplace retirement plans for American workers.” While I fully support the policy – not enough workers are covered by a workplace retirement plan – I don’t think the order’s proposals will motivate more employers to offer a retirement plan. Other changes would be more effective.
Too many 401(k) providers make it harder than necessary for employers to total and evaluate their 401(k) plan fees for ”reasonableness” – an important fiduciary responsibility - by not charging simple fees. One of these 401(k) providers is the payroll company ADP. Two weeks ago, I described my process for totaling ADP’s 401(k) fees using their DOL-mandated 408b-2 fee disclosure. Now, I’d like to do the same thing for Paychex - ADP’s largest payroll competitor.
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One of the largest small business 401(k) providers in the country is the payroll company ADP. Due to my firm’s fee comparison service, I get the opportunity to evaluate ADP’s 401(k) fees regularly. As a result, I’ve become very familiar with their DOL-mandated 408b-2 disclosure – which describes the company’s services and fees. While its generally clearer than insurance company 408b-2 disclosures, it can hardly be called intuitive.
In a recent study, we found 79% of our small business clients pay 100% of their 401(k) administration fees from a corporate bank account – not plan assets. This approach is popular because it can mutually benefit plan sponsors and participants. While the plan sponsor can deduct these fees as a business expense, plan participants can keep their amount invested – where they can grow until retirement.
401(k) plan sponsors have a fiduciary responsibility to distribute certain information to plan participants from time to time. The purpose of these disclosures is important - to equip plan participants with the information necessary to make timely and informed decisions about their 401(k) account. However, these important participant disclosures can also be many – and spread throughout the year - which can make their distribution seem like an overwhelming fiduciary responsibility to many 401(k) plan sponsors. If you count yourself among these 401(k) plan sponsors, I have good news – your role in distributing participant notices should be small. That’s because a qualified 401(k) provider will do the heavy lifting by preparing all of the disclosures applicable to your plan. You'll just need to ensure that each is distributed timely using an acceptable method. Typically, this responsibility can be easily managed using a 401(k) administration checklist. Below is a description of the various participant disclosures that can apply to a participant-directed 401(k) plan - with guidelines for their distribution. You can use this information to confirm you’re distributing the participant disclosures applicable to your 401(k) plan appropriately. If you have further questions, ask your 401(k) provider – they should be able to help.
The use of revenue sharing by 401(k) plans has declined sharply over the past five years. That means more 401(k) plans are paying “direct” fees – which are deducted from participant accounts – to their 401(k) provider instead. That’s good news because direct fees are more transparent and fair than revenue sharing payments – making it easier for 401(k) plan sponsors to keep their 401(k) fees in check.