we are trying to set up and design a new plan for a medical office with roughly 40-50 employees
There is no quick an easy answer to this question. While cost is a major factor there are many others which we help our clients evaluate vs the cost to achieve he best overall value.
The starting point is plan design: what are you looking to acheive with the plan. Provide a competitive benefit and provide additional compensation for employees? Maximize pretax dollars for the practice owners?
You will need a recordkeeper for the plan. We work with several recordkeepers. There are pros and cons between recordkeeps ease of use, service, integration with payroll and cost are factors here.
For a plan advisor you should interiew a few. You should pick one that is independent from a fund company or recordkeeper, has followed a fiduciary approach (called a 3(31) or 3(38) Fiduciary in industry jargon) and provides guideance above and beyond the investments.
I am available to discuss the above and help provide additional guideance based upon the specifc details of your practice.
Best, Chris Schiffer, MBA, CPA, CFP, AIF
I'm sorry I can't provide you a one shot answer, but there are still quite a few variables to consider. Medical practices can benefit from these tremendously, but having a good Third Party Administrator (TPA) that specializes in your industry is also equally important.
Other factors include: What the sophistication level of your physicians and employees are? Will some want the ability to have managed accounts inside the plan to manage their larger rollovers? How about a Self Directed Brokerage Account (SDBA)? Do you want as little to do with it as possible and just hire an outside manager to select funds 3(38) manager?
We can go direct to Fidelity/T.Rowe or others for lowest cost, but with that, also comes lowest levels of service.
This is not a sales pitch, but there are more factors especially for your particular setup. We have taken over medical practices that were in growth phases and seen a lot of corners cut that would have made the owners a lot more money in the long run while protecting them and participants as well.
Feel free to reach out to us if you would like any further guidance.
Jared Larsen, CFP, AIF
Setting up a 401k for any company should be done with the utmost due diligence, especially in the increasingly litigious company retirement plan arena. In my opinion, you should seek out professional guidance to assist you in designing a plan specifically tailored to the needs of your group. I have designed and advised many plans, and the design phase is so important, as making changes later to a poorly designed plan can be costly and time consuming. While low and reasonable costs are desired in any plan, cost is not the only thing to consider. Making sure your plan offers a good investment portfolio, informs and educates participants as well as is designed to stay in compliance with department of Labor rules are among many other things to consider. Really, compliance is not that hard as long as you know what you are doing. There are several components to the plan. There is the TPA or third party administrator, the record keeper, the custodian, increasingly the fiduciary manager and plan advisor and of course the mutual funds used to invest (I’d stay away from Self-directed accounts in any group that is made up of more than the owners, as this can add the liability of employees investing in almost anything they want) Your plan advisor/ designer will help you understand exactly what the cost of each component is. I would also advise you to stay away from any plan that has revenue sharing, such as money being paid to the TPA, record keeper or advisor that comes from the mutual funds expenses, as this can lead to a conflict of interest in the plan, and generally no fee reduction as the plan grows in size. Most importantly is to consider hiring a 3(38) plan fiduciary. As a plan sponsor, you will become a fiduciary to the plan. One of the largest fiduciary duties is in Investment options and the guidance that employees receive. It is important to offer not only a plan with reasonable costs, but to keep employees from investing in a way that takes on too much risk. Hiring a 3(38) fiduciary to manage professional investment portfolios and a plan advisor to assist in the education transfers the liability for investment decisions to the 3(38) manager so you don’t have to make the decisions on what to offer as investments and portfolios. Make sure you are working with a 3(38) fiduciary manager, not just a 3(21) manager which do not mitigate liability as much. If you want to further guidance, feel free to call me to help you start to craft your plan design. David A Kring, CFP®
Chris and Jared both point out important factors. The right plan will be a mix of good investments, good service and appropriate costs. Cheaper is not always better, but understanding where the costs are going is very important for a plan sponsor. Most companies will promise the moon in the area of service, but often, sponsors are left bewildered and without the level of support they signed up for. Some times, someone will sell you on service, but when you need them, they're out selling someone else on service, instead of providing that service.
A major cost factor comes with the type of funds used. In my opinion, any compensation that the adviser for the plan receives should come only from the client, in direct fee payments, not kickbacks, commissions or 12b1 fees paid by the investment company for the sales of their products or funds. That advisor should be willing to attest in writing that they are a fiduciary to you and your investments, meaning that they are willing to put in writing that their recommendations will be unbiased and made in your best interest. This is why it is important to clearly know whom is being paid by whom, because that is likely where their allegiance will be.
While a sophisticated lineup of hundreds of funds seems appealing to some, most people are paralleled where there are too many choices. And if they do act, they often second guess their choices, and make frequent changes that jeopardize their ability to get even market rates of return. Having fewer choices, and well constructed model portfolios, is usually better for participant engagement and performance.
There are many more factors to consider on the investments alone, but choosing the TPA (third party administrator) and record keepers will be important considerations as well. They should help you ensure that your plan remains in compliance with changes in the law and regular participant notification are taken care of.
Many times, an insurance company will provide a plan that seems easier because it is "all inclusive" and they do not charge on the separate parts, but often these plan utilize more expensive investment vehicles that provide kickbacks to the agent, and cover the other cost. Transparency is the key. If anyone says " there is no fee for that" then it is paid in some other way. I assure you it is not free.
I see that there have been some great answers here that point out that cost is not everything in a 401(k) Plan. You should be concerned with the compliance of the plan, the partners you work with, the investments, etc. It seems that you are looking for something that is simple to do, doesn't take a lot of time, cost effective, and protects you as the plan sponsor.
May I add my two cents into this. We work with two TPA/Recordkeepers. One you might have heard before who is king of low cots investing, Vanguard. I can tell you that their all in cost for a plan like yours of 40-50 people would be in the range of $5300 - $6100/ year. This is all based on participant size so if you have more or less than what you said it would be more or less than what I showed there.
The other TPA/Recordkeeper we work with is typically less expensive, but doesn't have the name brand behind them.
Both of them do great work which is why we use both of them. Are they the cheapest? They are not the cheapest, but they are on the lower end of the range. If you want to stay cheap, make sure you use index funds. Your hard dollar costs are what they are, but your investment costs can range from .1% to 5%.
The other thing that has been mentioned is your legal risk or referred to above as your fiduciary duty. Every plan has what they call a 402 named fiduciary and a 3(16) plan administrator (different than a TPA, but a TPA can act as a 3(16 if hired to do so). These two functions are usually listed in the plan document as the plan sponsor, but the functions are fulfilled by an individual or committee. The plan sponsor has the option of saying, I am a great Dr. but I am not a great 401(k) specialist so I want to hire someone to do this for me. We have partnered with a company that fulfills both the 402 named fiduciary and the 3(16) plan administrator roles. If this is of interest to be able to not focus on the plan, but on your practice let me know I am happy to get you setup with them.
If I can be of any help, let me know. Would be happy to help. Also, we serve as a 3(38) advisor if I am to throw our hat in the ring.
The easy answer is Vanguard. You can go direct and they offer a strong array of funds. For a lot of reasons, many of which have been outlined above, we typically like to bring Vanguard and DFA (low cost) funds into our open arch platform with groups like John Hancock and Fidelity as these companies offer a lot of great tools for participants as well as fiduciary backing for the company itself