Is There an

Is There an "Easy Button" for Setting Up a New Retirement Plan?

Facts

As a small business owner, I’m constantly looking for cost-effective ways to improve the benefits I offer my employees. My industry is a competitive one, and it’s important to me to have a package that helps attract top talent and retain current employees too. Recently, my attention has turned toward implementing a retirement plan, but it seems like a lot of work to set up.

Question

How much time and effort should expect to have to put in to set up a 401(k) plan for my employees? Isn’t there an “easy button” I can push? And, am I looking at spending an arm and a leg to get this going?

Answer

Congrats! Implementing a 401(k) plan for your company is a great benefit to offer your employees and an awesome opportunity for tax savings for you and your firm as well. While there is some legwork required to get things going, partnering with a knowledgeable service provider who can walk you through the process makes it much easier.

Who Does What?

Before we get into the details on what needs to happen, let’s talk through the cast of characters that can assist you with plan implementation and ongoing maintenance.

Third Party Administrator (TPA)/Retirement Plan Consultant: The TPA is your go-to resource for help designing the features you will include in your new 401(k) plan. These include things like when employees will become eligible, the types of contributions that can be made, how employees access their accounts, and so forth. A good TPA will take the time to help you understand your options and select the design features that make the most sense for your unique company and demographics. After the plan is established, the TPA will conduct the annual compliance testing, calculate any company match or profit sharing contributions you might want to make, and prepare the annual Form 5500 filing (kind of like a tax return for the plan).

Investment Professional: This financial advisor will work with you in several ways. First, s/he will help you select the investment options (usually mutual funds) that will be available in your plan. Second, the advisor will educate your employees and help them determine which of the plan’s investment options best suit their needs. Third, they will monitor the selected investment options to ensure the initial selections continue to be a good fit.

Recordkeeper: This is the provider that keeps track of how much of the plan’s assets belong to each participant. They provide the website and call center that you and your employees can use to view your accounts, transfer between investment options, and initiate other transactions. This is where you will send plan contributions to be deposited and invested. The recordkeeper also provides quarterly statements to plan participants and period plan-level reporting to you and your other service providers.

As sponsor of a 401(k) plan, you always have a fiduciary responsibility to manage it in the best interest of your employees, but assembling a solid team of service providers can take much of the burden off your shoulders and ensure you are getting expert guidance. As a result, selecting your team is probably your best first step. Knowing the right questions to ask can be stressful, so we’ve put together several checklists to help guide you through the process.

What Has to Happen?

So how do all these folks come together as a team to get your plan up and running? Here’s how the process typically works.

First is the plan design process we mentioned earlier. That includes reviewing various options to determine the provisions that best fit your HR goals and budget. We’ve put together a summary of plan designs to help you get conversational on that topic. And, while reading the details can be helpful, we find that most plans sponsors prefer seeing some actual numbers to help it all make sense. If it seems like we’re harping on the need for plan design review, it’s because we are. You want to make sure your plan starts on the right foot. If you’d like DWC to run some scenarios for your review, just click here to provide some basic information to get us started.

Once the design is nailed down, it’s time to document it. The IRS has some detailed rules about how plan documents must be written and what details they need to cover. Once your plan document is drafted and executed, it becomes the roadmap to maintain your plan and keep it compliance. You must follow those provisions exactly as they are written (at least until you formally amend the plan), so it is important to work with a TPA who understands the importance rather than just flying through it as a formality.

While your TPA is preparing the plan document, your financial advisor will work with you to select the investment menu. Once the plan document and investment menu are in place, your team of experts will work together to get the plan setup on the recordkeeping platform. The recordkeeper set up is a combined effort between all of your service providers, pulling specs from the plan document as well as the investment menu. Once complete, the recordkeeper will provide enrollment materials and instructions for accessing the website. This allows the financial advisor to conduct enrollment and educational meetings to get participants excited about the plan!

Now you’re just about ready for the plan to go live (woo-hoo!). One of the last things to do before launch is to make sure your payroll system is set up to withhold the amounts your employees have selected and remit them to the recordkeeper. It is common for recordkeepers have direct links with many payroll providers, which can automate the vast majority of this process.

How Much Will It Cost?

We’ve walked through the “who” and the “what”, but we still need to address the “how much.” The challenge is that there is such a broad range of service and expertise that it’s not quite as simple as spreadsheeting the costs. Some service providers do most of the heavy lifting, so you don’t have to. On the other hand, some expect you to know what you’re doing and will ask you to serve up everything on a silver platter for them to run it through their software without asking questions. As you might imagine, the price tags vary.

Though it’s difficult to say how much you will actually spend, we can provide you a quick rundown of how fees are typically quoted.

Plan Document and Plan Design Fees: This is usually a flat fee. Some providers will charge a higher, one-time fee to prepare your plan document, while others will charge a lower, annual, plan document maintenance fee to cover the costs.

Investment Advisory Fees: These fees are usually a percentage of plan assets and are automatically charged to the plan on a quarterly basis. Some advisors have a sliding scale that reduces the percentage as plan assets grow, and others will set a hard dollar cap. It’s rare but possible that your chosen financial advisor may have an out-of-pocket (i.e. not based on plan assets) fee to be paid at the time of engagement.

Recordkeeping Fees: There are usually several components to this fee – a base fee, a per participant fee and an asset-based fee. Again, it is common for these amounts to be charged directly against plan assets on a quarterly basis, though it is also not unusual for plan sponsors to elect to pay some or all of the recordkeeping fees out of pocket since they are tax-deductible business expenses.

Plan Compliance Fees: TPAs will also charge a fee to prepare the annual compliance testing and Form 5500. This fee is often comprised of a base fee and a per participant fee.

The good news is that the fees related to plan set-up are deductible company expenses. Moreover, the SECURE Act (signed into law at the end of 2019) provides for generous tax credits for new plan sponsors. Wondering how much of a tax credit you may be eligible for? Here’s an easy calculator to help you crunch those numbers.

A 401(k) plan can be a wonderful benefit to current employees as well as prospective ones. Not to mention, it can provide significant tax savings to you and your company. The plan can be designed to really stretch those HR dollars in a way that provides meaningful benefits to top tier employees and you, the owner. While there are numerous steps to get you from the idea to the live plan, there’s no need to go it alone. Working with experts can help you navigate the journey in the most efficient manner and help make sure you start your plan on a successful foot.

Need support getting started? The DWC team is here to help!

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