My asset allocation strategy for the ef plan would be vanguard funds using a David Swensen's lazy portfolio?
The decision of whether to use a 401(k) or a SEP IRA will definitely depend upon the structure of your business. If your employees have been with you longer than 3 years, then usually a Safe Harbor 401(K) will make more sense than a SEP IRA - especially if your business is profitable. The primary difference is the SEP'S requirement for you to put into your employee's account the SAME PERCENTAGE as what you put into YOURS. So, if you can put 20% of your compensation into YOUR SEP - then you must also put away 20% of your employee's compensation into THEIR SEP. That can sting - and is usually the reason business owners move from a SEP to a Safe Harbor 401(k).
Insurance-based plans are often more expensive than non-insurance based plans - as you have identified. This will affect not only the growth of the money in your employee's accounts - but yours as well. Theoretically, the cost of the plan you choose is a fiduciary responsibility. My advice ultimately would be to contact a retirement plan specialist - or a firm that specializes specifically in setting up and implementing low-cost retirement plans for small businesses. There are several such in my town (one is called Nest Eggs http://www.nesteggs.cc/). They truly specialize ONLY in retirement plans, and, as such, have a great deal more expertise in optimizing the plan and meeting all of your fiduciary responsibilities - which protects you from potential liability down the road.
If you choose the DITY (Do-It-YourSelf) route - personally, I would at least explore the Sharebuilder 401(k) that is through ING. It is not run on an insurance or annuity-based platform, and uses all ultra-low cost ETF's as the investment options. They have specialists to help you design your plan - and they charge a transparent setup and third-party administrator fee (that is deductible as a business expense) for the required Form 5500 filing with the Department of Labor that you will have to do. Their website is www.Sharebuilder401k.com.
I am NOT endorsing either NestEggs or Sharebuilder - just making you aware of them as a resource that has been helpful to our own firm and other firms we have seen set up their plans. Good luck with it; it is a significant step in creating wealth through your business.
Jon Castle http://www.WealthGuards.com
You don't necessarily have to choose between 'low-cost/do-it-yourself' and 'high-cost/adviser involved.' My firm offers plans where we share fiduciary responsibility and I've yet to see any firm provide a more cost effective plan than us (including many that don't even offer education or fiduciary services). I'd be happy to run a proposal for you so that you can compare for yourself or to be a sounding board to help you choose. We'd love your business (obviously) but we're most interested in doing right by investors and if that means using our network to help you find an adviser locally we're happy to help in that way too.
Jory why do you have to choose between Cost & performance? You can have both you just need to do your homework and find a team of independent un-conflicted qualified experts to help. There is nothing more important to the plan then running it in an ERISA compliant manner. Your Tax qualified status is dependent on it. ERISA clearly states if you are not a qualified expert, you need to hire one.
Unfortunately, the cost of investment choices do not necessarily correlate with performance. Many advisors that are long in the tooth might argue the opposite is usually true. The asset allocation often the more important factor. Depending on your assets, you may want to consider a SEP IRA, which could be less costly and more flexible for your company and allow a wider array of investment choices including ETFs. Once you grow the company, you could move to a 401(k) plan. Try to find a fee only advisor that will sign on as a fiduciary regardless of your choice. There are new plan designs that can get your internal management fees and administrative costs down significantly. Spend some time researching your options.
I will say this more strongly than others who are softly suggesting it: investment performance is INVERSELY correlated with fees. If you choose a high cost provider like Transamerica, you will likely experience long-term returns that are poorer than you would get with a low cost provider like Employee Fiduciary, Sharebuilder, 401kDIRECT, etc. If Transamerica or any other insurer actually offered individualized and fiduciary advice, which they don't, then I'd tell you perhaps they had a chance to make up their high fees with great advice. But they are also weak in the advice department, so don't buy into that argument should they offer it. Your best bet is to work with an RIA (if you can find one) who will help you source your plan and provide ongoing fiduciary investment advice for a reasonable, transparent fee.
I know some will feel this is a strong opinion, but I am more comfortable putting my name to it.
Best of luck to you.
Jory - You are definitely on the right track. As Donald said, performance and fees many times have an inverse relationship. A big driver of that are the hidden fees as they erode performance! In today's "full disclosure" environment, you should be able to find a vendor that suits your needs at a cost you can afford. I would suggest going with one of the lower cost providers and hire an adviser to assist you in getting set up. If you are happy with said adviser, keep him/her on board to advise on the plan. You will most likely end up paying the adviser's minimum fee which should be worth it to you and your employees in ensuring you have a well constructed plan that meets your needs. Take care!
Great question, but certainly difficult to answer without all the information. Assuming your Financial Advisor spent sufficient time getting to know the needs of you and your business and performed all the necessary due diligence, it would be hard not to suggest you trust his/her recommendation.
As George and Jon mentioned above, there are many options available to small businesses and it can often be an overwhelming world to navigate. If you are questioning the recommendation of your Financial Advisor, you might consider obtaining a second opinion.