All 401(k) services are not created equal. You may have had a plan in place for years and never questioned the fees and exactly what roles and responsibilities you might have toward employees.
It’s time to dig in and ask those questions.
Read this brief guide to learn five reasons to consider a new, more modern 401(k) service provider and discover the potential benefits of making a switch.
The less you pay in investment costs, the more you keep in your retirement account. The more you keep in your account, the faster it can grow over time.
The best way to do that is to use low-cost index funds in a portfolio that matches your tolerance for the normal ups and downs of the stock market. By matching the market and keeping costs minimized, your portfolio is likely to beat more expensive, actively managed portfolios.
It seems like a simple thing, but many 401(k) plan providers stick with higher-cost actively managed funds. A better 401(k) is one that finds those fund-level cost savings and passes them along to you and your employees.
Lower administrative costs
Inertia is an overwhelming force. Like, really overwhelming. Many business owners first seek out a payroll provider and then accept a 401(k) plan from the same provider without a second thought.
That kind of “up sell” in the financial business is virtually pure profit. The business owner becomes an unwitting captive and accepts high fees without question.
The fact is, you can get a 401(k) plan from anywhere and leave your payroll company out of it. The cost savings can be tremendous.
Better informed employees
Ever talk to your staff and managers about their investment choices? Feels like a personal topic, doesn’t it? The fact, however, is that many business owners are required by their own plan rules to help your employees make appropriate long-term investment decisions.
Failing to do this regularly can lead to poor outcomes and, potentially, lawsuits against the business owner years later. Or you can rely on a qualified plan provider to help you with employee investment selection, thereby greatly reducing a very real business risk.
Better tax breaks for owners
Starting a business is hard. It can take every penny you earn and maybe more to keep a new business afloat.
As a result, many business owners short their own, personal retirement plan for years on end. Yet it’s those early years of investing that can make the biggest difference in the long-term success of a retirement portfolio.
A modern 401(k) plan, working with your tax advisor, can open the door to tremendous catch-up provisions. You can set aside more money tax-deferred and tax-free than you might think possible.
Reduced owner risk
“Fiduciary” is a Latin term often used in the context of banking, business and law. It means, simply, “trust.” If you start a 401(k) plan for your company, as the business owner you typically become the fiduciary of the plan by default.
Being the fiduciary means that your employees rely on you to provide the best possible investment plan at the lowest reasonable cost. It’s for that reason that the government requires periodic audits of existing plans.
A modern 401(k) can help you reduce your exposure by shouldering much of the fiduciary role in your plan, thus reducing business owner risk.