In a time of record-low unemployment, small business leaders can’t hope to compete for talent without the right retirement benefits. The right small business 401(k) brings talented workers to the door, but it doesn’t nickel-and-dime the company to death with fees.
An Accenture study found 68% of workers worldwide with pension or retirement benefits consider those benefits a critical factor in their choice of job. Only slightly fewer, at 62%, said they were critical to their decision to stick with a job.
Most small businesses simply can’t afford to set workers up with pensions, but they can provide defined-contribution 401(k) plans. With so many providers on the market, though, how can they be sure they’re picking the right one?
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What Makes a Great Small Business 401(k)?
At first blush, small business 401(k) plans might all look alike. But the best ones have a few key features:
1. Low investment fees
Neither small business leaders themselves, nor their workers, can afford to have their retirement contributions siphoned off by high fees. An important consideration when comparing is what investment options they offer.
According to Guideline, the average small business 401(k) plan provider charges more than 1% of the assets managed annually. Make the most of your employees’ retirement — and how much they’ll actually take home when they hit retirement — by looking into providers with low-fee investment options. They’ll get the most bang for their buck with low-fee passive index funds.
2. Integrations with popular payroll platforms
Small business leaders barely have time to process payroll, much less port the information from their payroll platform into their 401(k) plan. To save time now and into the future, select a plan that integrates with your existing payroll platform, as well as any alternatives you’re considering.
Look for plans that offer a wide variety of tools to connect. Even if you don’t use a certain type of integration now, you may want to utilize it in the future, so you’ll want a plan that makes adding it a seamless process. Companies like RPG Consultants connect to integrations like Heartland, JetPay, Paylocity, Paypro, and PC Payroll, making your life just a little bit easier.
3. Safe Harbor experience
Unless a small business 401(k) plan can meet certain standards, it’s subject to nondiscrimination testing, which is intended to prevent plans from favoring highly compensated workers. Plans that meet those standards are known as “Safe Harbor” plans, and they’re the most popular type of small business 401(k) used today.
To offer a Safe Harbor 401(k) plan, the employer has to make contributions on behalf of employees who vest immediately. Those contributions generally break into three categories:
- Non-elective contributions: Even if workers don’t contribute themselves, the employer contributes 3% or more of each employees’ compensation to its employees’ 401(k) accounts.
- Standard matching: The employer fully matches 401(k) contributions, up to 3% of its employees’ compensation. After that, it matches half of an additional 2% of their compensation.
- Advanced matching: The employer matches 100% or more of each employees’ plan contributions, not to exceed 6% of their total compensation.
Safe Harbor is an IRS designation, meaning it’s not a specific feature offered by certain providers. Choose a small business 401(k) provider with plenty of experience setting up Safe Harbor plans for companies with 100 or fewer employees.
4. Personalized guidance for employees
Personalization is the latest frontier in small business 401(k) plans. Because most small businesses can’t afford one-on-one sessions with a financial advisor for their team members, it’s important to choose a 401(k) provider that offers some sort of tailored advice.
Some offer advice based on personal details like where employees live, where they want to retire, how much money they make, and what other accounts they may have. Other options, like Charles Schwab, give you access to registered financial advisors to offer independent advice to plan participants. You know your employees best, so figure out what they value and choose a plan that will provide them guidance in whatever method they prefer.
5. Usability for all
A small business 401(k) might have all the features and investment opportunities in the world. If it’s not user-friendly, though, employees are unlikely to use it — and even less likely to adjust their contributions when their circumstances change.
Usability was so important to TEN7 that it switched from ADP for this reason. In a recent blog post, one employee of the web design agency commented that “it looks like a Windows application from 1999.”
Employees should be able to see at a glance what their contributions are and quickly make changes. Small business owners shouldn’t be left guessing as to whether or not they’re compliant, and rollovers from other retirement providers should be simple.
Picking a small business 401(k) provider is no small choice. Growing companies need a competitive plan in order to attract employees, and workers need to retire some day. With the right balance of fees and functionality, everyone wins.