How difficult is it to begin a 401K plan? Do I go straight for the big guys like Fidelity etc? Where can I find a list of these high quality, low cost providers? I'm talking to our payroll provider but also looking for opts. We want our cost to be low but we also want a high quality plan where we will get a good return on out investments. We are a small company (11 employees). I'm new to all this so I will really appreciate the feedback and advice. Thank you!
Juanita you do not need an advisor to establish a 401(k) plan. Take a look at www.sharebuilder401k.com which is through ING Direct to get a quote. It is easy, affordable, with quality investments. If your company is a member of Costco an additional discount may apply.
You may find it difficult to go to the "big guys" because they require a pretty sizable asset base to take you on. There are Third Party Administrators (commonly referred to as TPAs that may be your best bet). Many of these TPAs work with Advisors, like the those you find on the Brightscope website. Try to find an Advisor that is fee only, and will accept fiduciary status as a ERISA Section 3(38) fiduciary or at the very least a Section 3(21)(A) fiduciary.
Establishing a 401k plan is not terribly difficult if you work with good service providers. A fee-only advisor in your area is a great place to start. Look for someone who focuses on small company retirement plans. This individual should also help you decide whether a 401(k) or SIMPLE IRA is right for your company.
In the 401(k) space, I have evaluated a number of platforms and the most friendly to start-up plan budgets that still provide quality investment menus and service include Employee Fiduciary, Sharebuilder 401(k), TD Ameritrade, 401k-Direct, and T. Rowe Price. I'm sure this isn't an exhaustive list but browsing these sites may help you understand the marketplace better and learn what constitutes a good platform.
Some of these points have been noted but I wanted to answer your question in its entirety with a checklist of sort. We manage plans for companies of your size and there are a handful of things that I recommend. Going it alone is one option but I think you will find it easier to navigate the regulatory environment and bring your employees a much richer plan if you work with a qualified fee only advisor with whom you can build a long-term relationship and bring some financial direction to your employees.
-Start by identifying a Registered Investment Advisor who is willing to take on the role of a 3(38) advisor. As your company grows, this will become even more important as a 3(38) advisor will help relieve you of the investment liability when selecting the investments for your company. Short of hiring a 3(38) advisor, you will shoulder the burden of selecting the menu and thus maintaining full liability for those choices.
-Stay away from insurance-based plans, as they are generally more expensive and have multiple layers of fees.
-Work with an advisor who is proactive in the plan design and is willing to analyze your plan to determine if you are maximizing the value that you receive from offering this employee benefit. The design of your plan can affect your company’s ability to recruit and retain qualified employees. In determining your needs, a good advisor should determine for you if a 401k is the right vehicle or perhaps the SIMPLE IRA is more appropriate, as previously recommended.
-A good advisor/investment firm will run an analysis of your plan design, have access to ERISA attorneys and other experts to ensure you are maximizing your company dollars, and ensure you are compliant given the new 408b2 and 404a5 regulations.
-Make sure your plan includes index funds or exchange traded funds which are substantially less expensive than actively managed mutual funds.
While this list is far from complete, it will certainly get you started in the right direction. If you would like to chat about this question in more detail, feel free to reach out to me at 541-770-1311.
A start-up plan with just a dozen participants will likely not be attractive to the big 401(k) players like Fidelity. Find a low-cost provider who can work with you to set up the plan and alleviate some of the fiduciary burden you'll have as the plan sponsor (brokers typically don't offer this, but some RIA's do). Use one of the benchmarking services (like FiduciaryBenchmarks.com) to determine what similar plans are paying before approaching providers. Fee's can be complicated so try to compare apples to apples whenever possible and understand that it's not just price, but also what you're getting for the money. For example education may be included or may be extra. Last, speak with someone who has experience, whether it's me or some of the other posters on this board... and then get a second opinion. Knowledge is power and I commend your dedication to getting this right, because as a fiduciary you have a responsibility to make the right choices on behalf of your plan participants. -Mike
Juanita Alot of good advice. I always recommend starting with the plan design frist. Find an advisor who specializes in retirement plans and have them get a TPA(third party adminsitrator) to review your objectives and design a plan based on your specific company. Noramlly all they need is an employee "census" include emplyee by number, age,salary and date hired. Once you know the type of plan and options then you can "shop" for the best provider. As mentioned you may just want a low cost simple 401K or a robust 401k with profit sharing and defiend benefit. Best of luck. Mark Schreiber CPA
Juanita - These are all excellent suggestions. A common theme in all of them is to work with someone who can help guide you and they should get you set up with a solid plan with low cost investment options (i.e., ETf's, Index Funds). This is a good start and as your plan grows you can look to expand fund options, etc. One other option you may want to consider is your payroll provider. They may offer a small business 401k plan. I only suggest this option if you work with an advisor so they can make sure your payroll provider's offering is a good one (i.e., fair expenses, good investment selections, etc.) that makes sense for your company. Good luck and I think it's awesome you are not only setting up a plan but are looking to do it right from the get go! Congrats and good luck! Marcus Crawshaw, CRC