Aug 17, 2016

Posted by in Business tips

How to Find the Best 401(k) Plan for Your Employees

Multiple studies over the years have shown that benefits are an important part of hiring and retaining the best talent. Among those benefits are 401(k) plans that combine employer and employee contributions to provide future retirement income. The most important question in this regard for every small or medium-sized business (SMB) is this: are we offering a competitive retirement plan for our employees? If not, changing it should be a top priority.

SMBs have a lot more 401(k) options today than in the past. For example, small business payroll services are offering 401(k) plans with greater frequency. Being able to sign up for a plan through a payroll provider makes providing this benefit a lot easier on SMBs. Having said that, business owners and managers still have to do their homework to find the best plan for employees because, as you probably know, there is no one-size-fits-all 401(k) option.

Here’s how to find the best 401(k) plan for your employees:

Scrutinize Fees and Charges

Retirement plan administrators have to make money to stay in business. They do so by assessing various fees and charges in exchange for the services they provide. It is up to employers to know what those fees and charges are, in order to make sure their employees are not being taken advantage of. And make no mistake; there are retirement plan administrators out there who are doing just that.

A news story recently appearing on the 401K Specialist website explains the misfortunes of a small 401(k) plan that is now being sued for a breach of fiduciary responsibility due to excessively high administrative fees and the “imprudent investment options” offered to plan members. They are the second such plan to be sued in the last several months. Employers need to do their due diligence to make sure they don’t enroll their employees in risky, expensive plans.

Scrutinize Investment Options

All 401(k) plans must offer members a minimum number of investment options they can choose from. Therefore, employers need to scrutinize available options before signing up for a plan. Even if employers access a 401(k) option through their payroll service provider, they still need to know what investment options will be offered to workers. A broad range of choices consisting of opportunities with a good track record should be the goal. Employees should be given every opportunity to earn the best possible return on their money.

Scrutinize Plan and Provider History

It is not uncommon for a retirement plan administrator to offer numerous options from different providers. Scrutinizing every option in terms of its history is crucial. For example, one plan option may be from a provider that has been in the industry for decades and has performed exceptionally well over the term. Another may only have been in operation for a few years and thus, not have a strong enough history to be recommended.

The general rule is that properly structured investment funds gradually grow over time – even if there are some short-term fluctuations. Scrutinizing provider and plan history makes it clear which funds are properly structured and which ones are not. Employers should be looking for 401(k) plans investing in funds with strong histories.

Whether a small business works directly with a 401(k) plan administrator or goes through a payroll services provider to offer a retirement plan, management has the responsibility to find the right plan for employees. Finding a plan requires a bit of effort dedicated to research and asking questions. Without that effort, it is nearly impossible to get the best plan for workers.