If you are thinking about offering a 401(k), you may think it makes perfect sense to hire your payroll provider to recordkeep and administer the plan. After all, you want to sock away funds for tax deferred investing and you want the same for your employees. But you are also running a business. And if you are like most small business owners, thinking about complying with complex IRS rules, understanding fiduciary responsibilities, and evaluating investment options makes your head tired. If you can avoid a slew of administrative hassles by flipping a switch to turn on the “401(k)” option, why not flip it and move on?
Actually, we can think of a reason. Okay, we can think of at least five reasons why your payroll provider may not be the best option when it comes to offering a retirement plan for you and your employees.
But guess what? You don’t need to hire the same company to run payroll and your 401(k) to realize these efficiencies. At ForUsAll our cloud-based 401(k) technology links almost any cloud-based payroll system into the 401(k) recordkeeper. That means your recordkeeper’s, well, records, are updated when new employees become eligible, deferral rates are automatically updated, and new participants are alerted when they become eligible for the plan. Integrating payroll with 401(k) recordkeeping is vital to avoiding unnecessary manual data entry, but payroll providers aren’t the only ones with this capability.
Typically, the fees charged by the mutual fund investments in the plan account for the greatest share of this total expense ratio. While payroll providers may offer thousands of investment options, make sure that the funds you are considering don’t wind up costing you tens or even hundreds of thousands of dollars while enrolled in your own 401(k). That can happen because what may appear to be small differences in fund costs can add up to huge differences over the decades participants are invested.
At year-end 2015 the average expense ratio for an equity fund was 0.53% according to the Investment Company Institute. If you are considering a plan where most of the equity funds cost more than 0.53%, that is a flashing warning sign that you may need to look elsewhere for a retirement plan. Better yet, look for fund expense ratios in the range of 0.20% or less. With the proliferation of low cost index funds, 401(k) investments should not be taking a big bite out of your employees’ nest egg. ForUsAll’s preferred investment lineup costs only 0.13% – learn more about our 401(k) investment philosophy.
Some payroll providers will “hook you up with a guy” who will act as your investment advisor. Make sure you do your full due diligence on this advisor, including understanding if they will act as a 3(21) or 3(38) fiduciary, learning what type of advice they will provide to your employees – and, very importantly – understanding how they will get paid. Are they taking commissions on the investments your employees choose, or are they acting as level-fee fiduciaries, in accordance with the new DOL fiduciary rule?
At ForUsAll, we provide full ERISA 3(16) fiduciary services. That means we take the work and liability for administering your company’s 401(k) off your plate. As a result, there are no gray areas when it comes to responsibilities. ForUsAll manages everything from the day-to-day operations on your plan to completing and signing the Form 5500 on your behalf. And our plans stay a step ahead of trouble with automated compliance checks that run continuously. This allows us to proactively fix and correct issues that may arise.
With ForUsAll’s payroll integration, we help customers who use the most popular cloud-based payroll providers automate their plan administration. Not only does this mean that deferral rate updates are automatically taken care of, (just like you’d get if you got your 401(k) directly from your payroll provider), but you also enjoy the benefits of a 3(38) fiduciary, 3(16) fiduciary services, administration and compliance work, and a low fee, commission free fund lineup. ForUsAll connects with many payroll providers including:
If you are happy with your payroll provider – that’s great! But before you expand that relationship by paying your payroll company to run your 401(k), you may want to step back and evaluate the alternatives. After a little research, you may find that a lightbulb goes off before you flip that switch.
Give your employees more than just a 401(k), join the movement.