A bit of a detour today to discuss small business 401(k) plans. Wealth45 generally focuses on employees of large technology companies. But thought a dive into the world of small business might be of interest.
When it comes to 401(k) plans, the playing field shifts between small businesses and tech giants. Smaller companies, limited by resources, often offer simpler plans with fewer options and potentially higher fees. Think of it as a streamlined approach.
NAVIGATING THE 401(K) QUESTIONS MAZE: YOUR COMPLETE GUIDE
Big tech, on the other hand, wields the power of scale. They boast wider investment choices, lower fees thanks to bulk deals, and sometimes even fancy perks like on-site financial advisors.
Ultimately, the ideal plan depends on the company’s size, priorities, and, of course, the employees’ needs. But remember, even with different bells and whistles, both aim at the same goal: securing a brighter financial future for their workforce.
Assessing Small Business 401(k) Plans
When evaluating 401(k) plans for your business, consider the following factors:
Costs and Fees: Compare the fees associated with different plans, including administrative fees, investment fees, and any additional charges.
Investment Options: Assess the variety and quality of investment options offered by the 401(k) plan. Look for plans that provide a range of choices suitable for your employees.
Ease of Use: Consider the user-friendliness of the plan for both employers and employees. A plan with a straightforward interface and easy-to-use tools can be beneficial.
Compliance and Reporting: Ensure that the 401(k) plan complies with relevant regulations. Look for plans that offer assistance with compliance and reporting requirements.
Employee Education: Some plans provide educational resources to help employees make informed investment decisions. Consider the level of support offered in terms of financial education.
Integration with Payroll: A seamless integration with your payroll system can save time and reduce errors in contributions and record-keeping.
Scalability: Choose a plan that can grow with your business. Consider whether the plan can accommodate an increasing number of employees and assets.
Provider Reputation: Research the reputation and track record of the 401(k) plan provider. Look for reviews and testimonials from other businesses that have used their services.
Potential Tax Incentives
Setting up a 401(k) plan comes with some sweet financial incentives:
- Secure 2.0 Act Tax Credits: These new credits, effective January 2023, can cover up to 100% of qualified 401(k) expenses for eligible small businesses (fewer than 100 employees) for the first three years. This can amount to $5,000 per year, or a total of $15,000 to ease setup and maintenance burdens.
- Auto-Enrollment Tax Credit: Implementing automatic enrollment, where employees pre-enroll in the 401(k) and can opt-out, earns you an additional $500 credit per year.
- Employer Contribution Deductions: Contributions you make to employee 401(k)s are deductible from your business taxes, lowering your overall tax burden.
Remember: Eligibility and credit amounts vary based on plan type, number of employees, and other factors. Consulting a tax professional or reviewing IRS resources like Publication 560 and the Secure 2.0 Act details is crucial to maximize your tax benefits.
Small Business 401(k) Cost Comparison
Pricing examples based on a company with 30 employees and starting a new 401(k) plan (i.e., no existing assets to transfer). Providers serve as the plan administrator.
| Provider | Human Interest | ShareBuilder | ShareBuilder | Employee Fiduciary |
| Plan Name | Complete 401(k) | Safe Harbor 401(k) | Traditional 401(k) | 401(k) Plan |
| Admin Fee | $1,800/year | $1,140/year | $1,320/year | $1,500/year |
| Per Employee Fee | $6/emp./month | $0 – $4.50/month | N/A | |
| Custody Fee | N/A | N/A | 0.08% of plan assets per year | |
| Investment Advisory Fee | 0.5% of account value per year | 0.75% of account value per year | None – if using Target Date Funds | |
| Fiduciary | 3(16) | 3(38)-investment discretion | 3(16) (?) | |
| Mutual Fund & ETF Fees | 0.07% avg. per the company (but depends) | Varies | Varies | |
Human Interest 401(k)
Human Interest offers 401(k) plans for small and medium-sized businesses, providing guidance on plan administration, IRS testing, and government filings.
Some key features include:
In-House Recordkeeping: The platform offers automated plan administration, tracking participation, contributions, distributions, and more.
Regulatory Support: Human Interest provides support by preparing government filings and, for some clients, signing and filing Form 5500.
On-Demand Reporting: Users can access a 360-degree view of their plan, generate reports, and monitor employee participation.
Plan Compliance & Testing: The service helps manage IRS testing and regulatory deadlines to ensure plan compliance.
Transparent Pricing: Human Interest plans come with transparent pricing, including a base fee starting at $120 per month plus $4 per eligible employee. Additional advisory fees may apply if advisory services are elected.
Payroll Integrations: Human Interest syncs with over 450 payrolls to streamline administrative tasks, making it easier for HR teams.
Human Interest Benefits for Employers:
Focus on Business: Human Interest aims to let employers focus on running their business by handling 401(k) plan administration.
Recruit & Retain Talent: A retirement plan is highlighted as a sought-after benefit, and Human Interest’s plans aim to help employers attract and retain top talent.
Ease of Use: The platform offers easy onboarding, admin dashboards for insights, and reduced manual work with in-house recordkeeping and compliance services.
Human Interest Benefits for Employees:
Easy Onboarding: Employees can sign up in minutes with no paperwork.
User-Friendly Dashboard: A simple dashboard allows employees to check balances and update preferences easily.
Built-in Education: Resources such as enrollment webinars help employees make the most of their plans.
Automated Salary Deferrals: Employees can opt for automated contributions with each paycheck.
Human Interest also provides resources for small business owners, including information on state requirements, investment philosophy, starting a 401(k) plan, and more.
ShareBuilder 401k
https://www.sharebuilder401k.com/
ShareBuilder 401k offers 401(k) plans designed to lower retirement benefit costs, allowing businesses to save more. Whether you’re a small business starting your first plan or a larger business seeking cost savings, ShareBuilder 401k aims to serve your needs.
Key features include:
Low-Cost Savings: Explore tax benefits and higher yearly contribution limits with their 401(k) plans.
Invest Wisely: ShareBuilder 401k emphasizes low-cost, high-quality investments in their roster, including index funds.
Plan Options: ShareBuilder 401k offers various plan options, including Solo 401(k), Safe Harbor 401(k), Traditional 401(k), and Tiered Profit-Sharing 401(k).
Low-Cost Approach: The platform keeps investment expenses under 1%, aiming to maximize savings for businesses and employees.
Investment Philosophy: ShareBuilder 401k follows a philosophy of long-term investing, diversification, and low costs to achieve competitive returns.
Automatic Pricing Discounts: The platform offers pricing discounts based on the company’s savings.
Employee Features: ShareBuilder 401k provides features such as auto ACH and one-time contributions, loan options, and ongoing investment roster management.
Safe Harbor 401(k): Businesses can benefit from a Safe Harbor plan to contribute the maximum annual deferral amount, receive tax deductions for matching contributions, and automatically satisfy IRS testing.
FAQs and Resources: The platform offers FAQs, blog articles, and videos to educate businesses on topics like Safe Harbor plans and investment management.
Client Support: ShareBuilder 401k provides support from 401(k) advisors and customer care during business hours.
Businesses of all sizes, including the self-employed, can set up low-cost 401(k) plans online with support from ShareBuilder 401k’s advisors and specialists. The plans come with investment management expertise and employee education to facilitate savings.
Employee Fiduciary 401k
https://www.employeefiduciary.com/
Employee Fiduciary is a full-service 401(k) provider. Their services are designed to make plan administration transparent and stress-free for business owners.
Employee Fiduciary 401k Plans Key Points:
Services:
- Full-Service Provider: Employee Fiduciary is a bundled 401(k) provider, offering all necessary administration services without the need for additional firms.
- Custom Plan Design: Flexible plans designed to adapt to the unique needs of organizations as they grow.
- Dedicated Support: Real people, not robots, provide dedicated support throughout the process.
- Consultative Plan Administration: Dedicated relationship managers provide consultative, transparent, and timely plan administration services.
- Transparency and Simplicity: Guiding principles include transparency and simplicity to avoid confusion, lower investment returns, and save time and expenses for business owners.
Investments:
- Investment Freedom: Participants have access to desired investments, including index funds and ETFs, without additional markups.
- Extensive Investment Options: Access to nearly 30,000 share classes from 377 fund families, including options like Vanguard, index funds, and ETFs.
- Cost-Efficient Funds: Offers cost-efficient funds, including low-cost index funds and ETFs, without hidden fees.
- Zero Markup, Zero Hidden Fees: Employee Fiduciary does not add fees on top of investment costs, ensuring transparency and cost-effectiveness.
Pricing:
- Low and Transparent Fees: Employee Fiduciary maintains a transparent and simple fee structure among the lowest in the country.
- Base Fee: Covers up to 30 eligible employees, with an additional fee for each extra employee.
- Custody Fee: Charged as a percentage of plan assets, ensuring a fair and straightforward pricing model.
How Employee Fiduciary Helps:
- Low and Transparent Fees: Transparent fee structure ensures participants pay as little as possible.
- Cost-Efficient Funds: Offers index funds for market returns or the option to hire a financial advisor for professional advice.
