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The “Plug and Play” 401(k)

Greg Carpenter

January 26, 2023


401(k) plans have a way of intimidating small business owners. Maybe it’s because of their tax code name. Maybe it’s because of the perception that 401(k) plans are complex and time consuming - taking away from their core business. I think it’s all this and more. One thing is for certain though: it’s time to demystify the 401(k) plan and start looking at it as it really is - a commodity.

Cracking the Code

In all the years my colleagues and I have provided 401(k) services for small businesses, we’ve noticed that people come to us because they just want low cost 401(k) plans without any hassles. We think these folks have cracked the code and recognize that a 401(k) plan is a commodity like so many other products. You can dress it up or down, but the definition of a 401(k) plan is still the same no matter where you go or who helps set up your plan. Our clients buy accordingly. Think of it this way - you need water to live. But a $3+ bottle of water will hydrate you just as well as a pour from the tap. So it goes with 401(k) plans. You need to save for retirement but what does a more expensive plan get you, other than less money at the end of the day?

You’ve probably heard the acronym “KISS.” It stands for, “Keep it simple, stupid.” Helpful advice for those considering offering their employees a 401(k) plan. While there are all sorts of services and fixed costs that a 401(k) plan can come bundled with, most folks don’t need those things. And they surely don’t need the fees that are rolled right up in the service of that plan - fees that have a way of hiding from unsuspecting plan sponsors. (For more of my thoughts on hidden fees, read my post from January 9th.) If you’re not paying attention, the fees alone can take a considerable chunk out of your retirement savings - don’t let it happen to you! The good news is, keeping 401k costs down isn’t hard if you’re thinking of your 401(k) plan as a straightforward commodity.

The Plug and Play Option

We can learn a little about the attraction of a “plug and play” 401(k) from Apple’s success in the personal computing market. Unlike PCs, which required more time and knowledge to set up and use, Apple learned to capitalize on the simplicity of its products. Just take your new Mac out of the box, plug it in and start using it - no computer science degree required!

For frugal small business owners and investors, a “plug and play” 401(k) makes just as much sense. Stripped of high touch services that most people don’t need, a basic 401(k) plan offers every participant an investment vehicle to save for retirement. Life is complex enough as it is - don’t make things more complicated than they need to be.

Agree or disagree? Comments welcome!

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