I get frustrated reading that high quality, low cost 401(k) plans are not the norm for small businesses. I think this opinion is the result of too many small business owners who don’t bother to shop the market for 401(k) plans.
Let me show you how to shop.
First, recognize that you are going to have to hire a professional firm, possibly two. You are going to need to a firm to provide record keeping and to put a plan document together. And you may want to hire a financial advisor to select or advise on investment options. You are hiring a professional firm, not buying a product.
Many business owners rely on a vendor to make recommendations regarding pre-determined 401(k) products. The owner then selects one of the set products presented. If that’s you, I can pretty much guarantee that the choices are not optimal. And they are most likely not in the best interests of you, your company, and your employees.
Now set three straightforward criteria for evaluating the professional firms:
- Investments – What choices will employees need to make? How will employees be guided to the appropriate investment selection?
- Employee participation – How will the professional firm get them to participate and to save appropriately?
- The bottom line – How will the firm help your company attract and retain employees? How will the firm help you maximize the tax advantages for retirement plans?
By thinking through these criteria, you are inviting a professional firm to assist you in putting together an employee benefit – they should act like a 401(k) resource center for your company. This approach is a far cry from “buying a product.”
Now go shopping...
Ask for proposals from three or four firms. The “who” is not as important as getting a good mix of firms to see the different approaches (and costs) to the same issues. Have them specifically address how they will approach each of your criteria. The trade-offs between costs and services should become apparent pretty quickly. Be aware that there is a broad spectrum of services and fees – from Vanguard small business, low-cost services to customized plan design and consulting.
The good firms will push back and want to know more about your business. Ask questions. Think about what it would be like to work with that firm over time – are they a good fit for your organization? Compare costs – both to you company and to employees. What are the trade-offs between costs and services?
I’m willing to bet that the few hours spent on this kind of shopping will yield a huge benefit to your company – you and your employees will save money and get a better plan for the money.
Shop and stay frugal!