401(k) Guide for Small Businesses: 401(k) Fees to Know Before Starting a Plan


Aat a time when recruiting and retaining the best talent is becoming more and more difficult, offering your employees a better way to save for retirement can be a competitive advantage for your business. However, it is important to understand the fees associated with starting a retirement offering, including those paid by your company and your employees.

In this article, we’ll give a general overview of the fees associated with offering a 401(k) plan, and share statistics on typical 401(k) plan fees, so you can have more information to offer. a superior savings experience for your employees.

What are the fees associated with 401(k)?

There are three main fees associated with 401(k) plans for investment, administration, and individual services. Each type of fee pays for a unique aspect of managing the 401(k) plan:

Investment costs

Typically, these are the highest fees associated with a 401(k) plan, covering the cost of investment management and other related services. Typically, these fees are based on a percentage of your 401(k) plan assets. Actively managed funds often have higher investment fees than passively managed funds.

Administration costs

Someone, somewhere manages your 401(k) plan and gets paid for those services. These fees cover general operations such as record keeping and fiduciary services. They also cover the costs of maintaining a dedicated help desk with a customer success team. Some employers cover these costs for their employees who participate in the plan.

Individual service charges

Service charge pay for optional transactions you can select, such as taking out a 401(k) plan loan or deferring 401(k) plan investments to an individual retirement account.

How much do participating employees pay in fees?

According SPONSOR, in 2020, the average total plan cost for a small pension plan was 1.24% member fees. For large pension plans, those with 1,000 members or $50,000,000 in assets, the average fee paid by members was 0.93%. That said, most savers may have investment fees ranging from 0.2% to 5%.

What are typical 401(k) plan fees for a small business?

You can expect to pay a one-time startup fee that covers a number of upfront costs, including:

  • Creating a planning document
  • Set up a trust for your plan assets
  • Setting up your plan on a record keeping system
  • Make your employees aware of your plan
  • Integrating employees into your plan

That said, it’s also possible to save money while offering a new 401(k) plan: Eligible employers may be able to claim a start-up tax credit up to $5,000for three years, to cover the “ordinary and necessary expenses” of establishing an eligible plan.

Additionally, employers can choose to match a portion of their employees’ contributions up to a certain amount or percentage. Employer matches are entirely optional and businesses can choose to:

  • Match contributions dollar for dollar,
  • Match at a specific percentage, or
  • Establish a hard dollar cap (instead of limiting matching contributions to a percentage of the employee’s total salary)

Does your small business need a 401(k) plan?

Although every small business faces unique challenges, more and more people are choosing to offer a 401(k) plan for the competitive advantage it can bring to their business. Additionally, 14 states are currently require or plan to require small businesses to offer a 401(k) or other qualified retirement plan.

Some of the benefits of starting a 401(k) plan offering for your business include:

Recruitment and retention

In a tight job market, it can be difficult to compete for talent. Fortunately, everyone wants to retire eventually, and your company can make it easier for them to do so by automating contributions directly from their paycheck.

Fiscal advantages

Employers can deduct the contributions on the company’s tax return as long as the contributions do not exceed certain limits. Best of all, this is on top of the aforementioned $5,000 per year start-up tax credit.

Avoid potential fees

As noted, some states require small businesses to set up retirement programs for their employees or may impose penalties on businesses that do not offer a retirement plan. Creating one now can help avoid non-compliance fees, which some states already charge start applying.

How can my small business set up a 401(k) plan?

Running a small business is tough, but running your 401(k) plan shouldn’t be. Fortunately, Vestwell can help. Vestwell is a digital retirement plan platform that makes it easier for you to offer and administer a company-sponsored 401(k) or 403(b) plan. By combining technology with a best-in-class experience and user-focused design, Vestwell delivers a wide range of services to small businesses everywhere.

If you are an employer interested in setting up a 401(k) plan for your business, you can contact Vestwell to determine if you are eligible to receive up to $16,500 in tax credits over three years, which can help offset or even eliminate administration costs. Interested? Learn more here.

Originally posted on Vestwell.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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