Too many small businesses skip offering a 401(k). They do this for a wide range of reasons, but more often than not fear is what’s getting in their way. Setting up a 401(k) is intimidating! Business owners who are already dealing with a full plate of to-do’s often don’t want the added stress and pressure of setting up a retirement plan for their employees.

However, most people don’t realize that setting up a 401(k) has significant benefits for your business, and is probably easier than you think it is. Most 401(k) plans make it simple to get set up, and your payroll software is typically able to help you coordinate withholdings from your employees’ paycheck to further simplify the process. The biggest decision you’ll likely have to make is which plan provider to go with, and you have a lot of options.

The Bigger Players: Vanguard, Schwab, or Fidelity

Many small businesses go with one of the bigger players to manage their 401(k). Three of the “biggest” that people end up considering are Vanguard, Schwab, and Fidelity. Bigger companies can offer more high-touch services and have years of developed processes to support your employees who are going to enroll in their 401(k) plan.

Fidelity Investments, for example, offers a mobile app for their 401(k) plan participants. They also have consultants who help business owners select the plan that makes the most sense for their small business. Vanguard offers plans that focus on low-cost investing and long-term performance, which could be ideal for a small business owner and employees looking to jump-start their savings. They also handle everything from plan set up to day-to-day administration for your employees to make your life a little bit easier as a business owner. Schwab offers customizable plans with optional employer-match contributions.

All of that being said, there are pros and cons to going with a bigger plan provider. Most big plan providers offer a lot of assistance to both small business owners who set up their 401(k) plan, and for your employees. They also the security that comes with being a stable, consistent plan provider. However, as is the case anytime you choose to work with a financial giant, you run the risk of being one business owner in a sea of business owners who also work with them and are vying for assistance.

Although they have programs in place to service you, you won’t necessarily be their #1 priority at all times. It’s also wise to keep in mind that the big guys may have high set up costs or plan asset minimums that make it unfeasible for smaller companies. So, when looking for a plan provider, make sure to ask about all set up costs, or additional fees you might face!

New Kids On the Block: Betterment for Business, Vestwell, Guideline

Not interested in going with one of the major players in the 401(k) space? You might find a better fit with a smaller, newer plan provider. Options like Betterment for Business, Vestwell, or Guideline are worth considering. Betterment for Business launched in 2016 and offers low cost 401(k) options, and focuses on high-tech solutions for a better user experience. Vestwell also focuses on low fee investing, and works with employers to create an ideal plan for both you and your employees. Guideline is an even newer option for small business owners. Their transparent pricing ($8/plan participant), and integrate with a variety of accounting and payroll software.

Newer plan providers often have lower fees than some of the bigger companies you might be considering for your business or, at the very least, the fees you pay may be more transparent. They also could provide better quality customer service, or have top-notch technology to make the user experience for both you and your employees exceptional.

Your Payroll Provider

Not interested in shopping around for an extended period of time? Your payroll provider will likely be happy to add you to their 401(k) offering. Some examples of payroll providers that also offer 401(k) plans are ADP, TriNet, and Paychex.

This could be the most frictionless way to get your 401(k) going, but watch out for high fees and investment costs. Check out their 401(k) website with a few questions in mind:

Will it be easy for your employees to use? Is it actually going to be more efficient (read: less paperwork) for you to enroll in your payroll provider’s 401(k)? Are you (and your employees) going to wind up paying more through your payroll provider than if you had found a better-priced option elsewhere?

Some payroll providers have an exceptional plan offering, but others miss the mark. Make sure that you’re digging deeper to understand whether your payroll provider’s plan make sense for you and your team before going with them in the name of convenience.

Insurance and Mutual Fund Companies

Several insurance and mutual fund providers are in the small business 401(k) market. They often partner with “big firm” financial advisors to service the plans, which means you get an elevated user experience and customer service without all the added cost (in some cases). Some examples of insurance companies who also have a 401(k) offering are Principal, John Hancock, Nationwide, and Transamerica. I find the user experience to be a step up from the bare-bones payroll provider plans, but ultimately you’ll need to decide whether or not they work for your small business.

Already enrolled in a 401(k) plan through your insurance or mutual fund company? Their pricing has become more competitive in recent years, but if you have an older plan, I would definitely take the time to shop around. You may be able to significantly lower costs!

What You Should Look For in a Provider

A plan provider should check several boxes:

  1. Integrate with your payroll
  2. Handle day-to-day administration of your plan
  3. Act as an investment fiduciary
  4. Perform ongoing compliance testing
  5. Keep fees low
  6. Offer employer-match programs
  7. Be user-friendly

Depending on your business’s needs, you’re going to find different plan providers who check all of these boxes and offer plans at a price point that fits your budget. Some things will be easy to check off your list – like finding a plan provider that seamlessly integrates with your payroll. Most payroll providers, like QuickBooks Payroll, are able to help you coordinate retirement plan withholdings from your employee paychecks. However, other requirements may be tougher to meet, like finding a plan provider who keeps investment fees low for managing your plan.

If you’re a small business owner who is in the process of comparing plan providers, I want to celebrate this big move in your business! I know that right now you probably feel exhausted and overwhelmed, but you really are doing a phenomenal thing for both you and your employees. Preparing for retirement as a business owner can be a challenge, but you just need to get it done. If you’re struggling to pick a plan provider, or are just in the “analysis paralysis” phase of your search, reach out. I’d love to walk you through different options, and give you objective, fiduciary advice about which will make sense for your business’s needs.

Sara Stanich

Sara is a CERTIFIED FINANCIAL PLANNER™ practitioner, Certified Divorce Financial Analyst, and founder of Cultivating Wealth.

She lives in Montauk, NY with her husband, 3 kids and Labrador puppy.
Sara Stanich

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