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What kind of admin fees are reasonable when only 3 people participate in the 401K plan?

I am the staff accountant at a firearms manufacturer, the owner of the company wants to match up to 4% for 401K - we have a big named payroll company that we rolled over the 401K plan too in August of 2015 and they charge us more than half of the money that is put into the 401K plan for admin fees and I am just wondering if this is the norm?

Apr 13, 2016 by Becka in  |  Flag
4 Answers  |  6 Followers
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3 votes
Peter C. Karp Level 20

Hi Becka

It is great that the owner of your company wants to match up to 4% of employee contributions in the 401(k) plan. As the other advisor indicated, that will probably allow the owner to contribute more to the plan. Payroll companies are not always the best fit for a 401(k) plan as it is difficult to determine your exact costs and service plan you have with the payroll provider. In order for us to determine if the fees are reasonable we would need more information from you such as types of investment options, services being provided, whether there is an advisor on the plan that is also being compensated, etc. You are welcome to reach out to us directly to discuss your situation in greater detail. Our office number is 415-345-8185.

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Comment   |  Flag   |  Apr 15, 2016 from San Francisco, CA

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The answer requires a bit more information regarding the plan but I would suggest that you look into speaking with other 3rd Party Administrators to see what they can do in order to reduce your costs. Also compare the services that they are providing and how they provide them to you to ascertain their value to you.

You may also want to consider the reasons why you would use a payroll company for a retirement plan vs. companies and advisors who's only job is investment management and plan design and administration vs. a payroll company who's core competency is payroll services.

Comment   |  Flag   |  Apr 13, 2016

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How many people work for the company? It might be more affordable to do something like a SIMPLE IRA. I'm not sure about other firms, but with us there is only an account fee of $50 per IRA. A 401(k) can sometimes be too expensive sive if only a few people are participating.

2 Comments   |  Flag   |  Apr 13, 2016
Corey Anthony Purkat

If the Owner of the company wants to have a match up to 4%, the SIMPLE IRA only allows up to 3%, so that would defeat the purpose. Typically, when an owner is making that decision, its because the owner wants to utilize the Safe Harbors to maximize contributions . Additionally, the overall contribution limits are lower than 401(k) for employees and if there is already an existing 401(k), generally there can not be a SIMPLE IRA and a 401(k) plan existing together in the same year.

Flag |  Apr 13, 2016 near St Paul, MN
Troy Austin Riemer

You are correct on both, but the main focus of the question is fees - not about max contributions. There has to be a 12 month window between when employer sponsored plans are established.

Flag |  Apr 13, 2016

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Becka - Great question and you are not the only person/company to experience this. As others have said, more information is probably needed to best assess your situation.

Something else to consider, in addition to their admin fees for the 401(k), has this large payroll company used the pricing or even convenience of the payroll, in order to leverage or justify using them as the 401(k) provider? I've run into many plans were plan sponsors want to leave a "payroll provider 401(k)" but hesitate to do so because said provider would increase their payroll fees.

My firm provides 401(k) & retirement plan advice specifically for organizations that are part of the outdoor recreation industry - firearm manufacturers included. I'd be happy to take your call and see if there is anything we can do to help.

Here is my number where I can be reached directly, 763-442-2196 along with my website: northwoods.xyz

I look forward to hearing from you Becka, thanks!


Comment   |  Flag   |  Apr 13, 2016 from St Paul, MN

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