You Get What You Pay For (Even If You Don’t Need It)
In Monday’s post, I wrote about the dangers of picking a 401k provider based on brand name only. We left off at the point where the buyer has decided on the investment options best for them and has a few low-cost providers under consideration. Let’s consider the trade-off between fees and services.
Have you ever heard the word “bundled?” It’s a simple way that businesses can package a group of services for - wait for it - one low, low cost. The thing about bundling is this: many times, what has been bundled in includes services (and fees) that are not wanted by the customer. Unfortunately, the 401k market is rife with bundling, and all that bundling just adds to the overall sense of clutter and confusion. At Employee Fiduciary, we think each service (and its fee) should stand on its own. It’s how we choose the best of the best in any vendor search.
Small business owners know this intuitively. We’re on the lookout for ways to cut costs, increase profitability, and streamline processes for greater efficiency. You want to deliver the appropriate service at the lowest cost that fits the business model. Extra complexity, aka “bundled,” can distract your customers from your core message. So why bundle your low cost 401k plan?
Examples: As the world becomes less paper reliant, many 401k plan administrators “add value” by mailing hard copy statements to their clients’ employees three weeks after the end of a calendar quarter, snail mailing information that was dated and useless weeks old. Others offer 24-7 telephone access. Do you want to pay extra if all of your employees work only first shift? Do these services truly add value? For most of us, I would argue that they do not. Why would you pay for these “bundled” services if they add no value?
Rather than teasing out examples of other hidden costs in this post, let’s make it simple. You will need to make sure that the following services are covered in your fees. Determine the basic services you need. Here are the basics:
- Form 5500 Preparation and Filing
- Yearly Testing and Plan Compliance
- Payroll Withholding Deferrals
Go for the best of the best. I think the small amount of time you may spend working through these issues can save you and your employees significant money over the long term.
Until next time, stay frugal!
About Greg Carpenter
Greg Carpenter founded Employee Fiduciary in 2004. With 29 years of experience in accounting and finance, Greg has brought his expertise to a variety of advisory, senior and executive management roles. Greg has worked for a national accounting firm, a Fortune 500 plan sponsor, a major brokerage firm, and he served as the CEO of a major 401k TPA firm. He is a CPA and earned his BA from Yale and his MBA from The University of Chicago Booth School of Business.