Sounds like a simple question, right?
When it comes to finding the right 401(k) provider for your small business, it’s actually harder than you’d think. The small business 401(k) market is being “disrupted” (that’s the Wall Street Journal’s word – more on that below!), as plan sponsors start to realize that traditional vendors may not have the best offering for a company of their size. In fact, The New York Times rules out several of the largest 401(k) providers as not being designed to serve the small business market:
“Fidelity says its 401(k) plans tend to be too costly for companies with less than $10 million in plan assets. At Charles Schwab, the floor starts at $20 million.”
If you aren’t big enough to be in the largest vendors’ sweet spot, the question becomes: which are the best low-cost providers built to serve small businesses? In this blog post, we’ll try to help you build a list of good providers to consider.
Who does the press consider the best small business 401(k) provider?
The state of the small business retirement market has been making the press a lot recently. As the Wall Street Journal says, “Among companies with 100 or fewer employees—a group that employs about 42 million people, or one-third of the private-sector workforce—only 14% sponsor a retirement plan, according to an estimate by the Government Accountability Office.” Plagued by high fees, systems designed for big companies, and compliance challenges, it’s no wonder that many smaller companies have difficulties administering a 401(k) plan.
Thankfully, disruption is in the air, and there are a host of new providers looking to change the status quo and make it easier for SMBs to sponsor retirement plans. We’ll highlight some of the providers mentioned in three well-known publications, The Wall Street Journal, The New York Times and Employee Benefits Adviser. We also summarize reviews of some of the best 401(k) providers from financial technology review site, InvestorJunkie. We hope that these lists can help you find the best providers to consider when upgrading your company’s 401(k) plan.
Let’s see which vendors are considered by the press as the best small business 401(k) providers.
The Wall Street Journal on the Best Providers
The Wall Street Journal has published a number of pieces on how technology is changing the 401(k) landscape. A good one to check out is, “New Online 401(k) Plans Disrupt Retirement Market; Online plans bring robo-style investment services to workers at small businesses.” The article lays out a variety of SMB 401(k) solutions, and explains how technology companies are driving positive change in the retirement services market.
“Led by technology entrepreneurs and backed by venture capitalists, a crop of startups have launched online 401(k) plans in recent months with the aim of bringing robo-style automated investment services to small businesses, many of which offer their workers high-cost 401(k)s or no retirement savings plans at all.”
The Journal lists several vendors, including ForUsAll, and lists fees for both the employer and employee in a chart.
Small Business 401(k) vendor fee comparison chart
Source: The Wall Street Journal
|**401(k) Provider**||**Employee Cost (% of Assets)**|
|Dream Forward Financial||0.8%-1%|
The New York Times on Tailoring Retirement Plans to Companies With a Handful of Workers
In a piece from July of 2015, the New York Times acknowledged that the best small business 401(k) provider is likely not one of the traditional big business providers like Fidelity or Schwab, “Large providers have the best selection of low-cost funds, but small plans with just a handful of participants are not profitable enough for them to bother selling directly.” The article goes on to address the needs of small business 401(k) sponsors, and highlights several good retirement plan providers serving the small business market. The Times mentions two new providers, ForUsAll and Honest Dollar, and also some established players like Ubiquity and Capital One’s ShareBuilder.
Directly quoting from the article, “Nick Culbertson, the co-founder of Protenus, recently went shopping for a retirement plan for his 10-person company, a healthcare technology start-up in Baltimore. Working with a local benefits consultant, RCM&D, he picked ForUsAll, largely because it was the most affordable option… Setting up with ForUsAll was easy, he said, and Proteus’s employees especially liked “Dave,” a virtual adviser created to answer questions and make the enrollment process easy.”
Employee Benefits Adviser on Robo-advisers to watch – it’s a good list of small business 401(k) providers
Employee Benefits Adviser, a magazine that provides advisers, brokers and consultants with the workplace benefit news they need to best serve their clients, anticipate changes in the marketplace, and run their businesses, published a list of “6 401(k) robo-advisers to know.” The article lists the advisers alphabetically and includes Betterment for Business, Bloom, Captain401, ForUsAll, Guideline and SaveDay. It’s a great list to check out if you are trying to find the best 401(k) provider for your small business’ needs.
InvestorJunkie reviews some of the best 401(k) providers
InvestorJunkie, a financial product review company, has reviewed a number of 401(k) providers, and we’ve compiled their rankings so that you can use them to find the best provider for your business. The review notes on the InvestorJunkie best 401(k) providers listed below can be navigated through from this page.
|**401(k) Provider**||**Ranking**||**Investor Junkie Review Notes**|
|America’s Best 401(k)||4/5||America’s Best 401k (ABK) is a retirement account service that’s great service for small businesses.It’s much cheaper than most other 401(k) custodians. In addition, it offers a wide variety of low-cost passively managed funds. However, if you’re an employee who wants to use the service, you’ll have to convince your boss.|
|Captain401||4/5||Captain401 is a service that helps employers easily set up 401(k) plans online. Specifically designed for small- to medium-sized companies, Captain401 is hoping to fill a niche neglected by industry giants like Fidelity. However, Captain401 hasn’t been around long enough to see if it can truly hold up.|
|SaveDay||3.5/5||SaveDay is a “401(k) robo-advisor for small businesses. The company offers a low-cost and complete solution for employers and their employees. SaveDay provides professional investment management at fees well below what’s typical in the industry. However, it’s not for investors who like to make their own decisions.|
|Financial Engines||3.5/5||In 1998 the firm became the first independent online advice platform, and they have worked to remain in the forefront of how people plan, save and invest for retirement ever since.|
|Smart401k||3/5||Smart401k is an independent provider of retirement investment advice that helps you avoid endlessly researching the funds available in your retirement plan. The service is easy to use, but it’s missing some features that may be needed for more complicated retirement portfolios.|
Selected 401(k) companies mentioned in the above articles as good 401(k) vendors
Here is a handy list of some of the companies mentioned in the articles, with the publications they appear in noted next to the company’s name:
- ForUsAll (The Wall Street Journal, The New York Times and Employee Benefits Adviser)
- Honest Dollar (The Wall Street Journal and The New York Times)
- Betterment for Business (The Wall Street Journal and Employee Benefits Adviser)
- Captain401 (The Wall Street Journal and Employee Benefits Adviser)
- Dream Forward Financial (The Wall Street Journal)
- SaveDay (The Wall Street Journal)
- Ubiquity (The New York Times)
- Capital One Sharebuilder (The New York Times)
- Guideline (Employee Benefits Adviser)
- Bloom (Employee Benefits Adviser)
Now that you’ve got a list of companies considered the best by the press, how do you evaluate what’s right for your company’s plan? Let’s consider what to look for when selecting the best retirement vendor for your business.
How do you determine who is the best 401(k) provider for your business?
The answer depends on whether you prefer a:
- “Do it for me” 401(k) that’s more turnkey, or a
- “Do it yourself” (DIY) 401(k) that may be even slightly cheaper, but you have to do much of the work.
Before you declare yourself a DIY type, please make sure you know the 401(k) landscape well, including, among other things, investments and Department of Labor and IRS regulations. We’ll discuss the work that goes into a small business 401(k) plan below, so you can decide what kind of a provider is best for your company.
DIY 401(k) – Like remodeling a kitchen…
This is like remodeling your kitchen yourself: You’ll be responsible not only for the design job, but also for selecting and buying the materials, getting construction permits, learning how to cut granite, putting it all together according to the approved plan, and passing an exacting inspection before you have the custom solution of your dreams.
If you have a ton of time to spend – and the right expertise, you can save a little money by doing everything yourself. But, to be clear, you’ll have your work cut out for you. Here’s just a partial list of what you’ll be responsible for:
“Do it for me” solutions
If you are a “do it for me” type (at least with respect to retirement plan administration) and if you’d rather devote your time to running your core business, consider “do it for me” 401(k)s from places.
A “do it for me” 401(k) is doing all the things on the checklist above for you, and more. Things like plugging into the payroll system so that your payroll and 401(k) are always in sync, doing much of the administrative work to help keep the plan compliant and reduce your small business’ legal liability, translating the nearly indecipherable 401(k) rules into plain English, and informing and educating your current and new employees about the plan so that most will stay in the plan and save for retirement. After all, that’s the whole point!
Shopping guide to help you find the best 401(k) vendor for your small business
Selecting the best 401(k) provider for your SMB will save you time and money, and minimize your compliance liability. Now that you’ve got a list of providers to consider, how do you pick the best for your plan?
Remember, 401(k) providers are regulated by the Department of Labor, IRS, and sometimes the SEC (if you’ve hired an SEC-registered investment advisor). This alone makes the benefit a complex one. And as a plan sponsor, you are filing an annual Form 5500 with the IRS, subject to ERISA requirements, and more. Talk to us if you need help asking the right questions.