401K plans are sought after by employees. Many large companies and corporations will offer attractive 401K benefits. This helps keep their employees on track with investment planning for retirement. However, it can be tough for the small business to offer 401K plans to its employees. As a small business owner, you should consider the costs of 401K plans for you company. Unfortunately, the costs and fees with these plans can run quite high. To make matters worse, 401K providers all have different costs and pricing structures. In order to understand the true cost of 401K for small business, we have put together this list of fees to watch out for.
401K Setup Costs
A 401K plan can be very costly to setup. Many 401K providers charge a set up fee for single employee or multi-employee businesses. The setup costs can range anywhere from $299-$1500. This price can be a concern for small businesses who do not have the additional cash flow to spend. It covers the cost to establish the plan along with access to the accounts, platform and information. Typically, the 401K setup costs are lower for individual self employed plans. You should pay attention to the setup costs to stay within your budget.
Ongoing Monthly Costs
After the setup fee, the 401K costs for small businesses includes a monthly fee. If you are enrolling in an online 401K plan, then you might be able to save some money on the ongoing administrative costs. Some 401K companies provide automated administration that syncs with payroll and record keeping. This allows for easy signup and onboarding with new employees. Typically, the monthly expense ranges anywhere from $85 per month to $250 per month. Depending on the provider and platform, you can find some deals to keep your monthly costs lower.
401K Investment Fees
In addition to the administration fees, which can be paid out through returns, investment fees cover the costs to manage the plan’s investments. Typically, this 401K cost is deducted from the plan as a percentage of the assets. This is what makes it tough for small businesses to offer a 401K plan to employees. Larger companies have more assets to manage which allows them to negotiate a lower investment fee percentages. Small businesses are often subject to higher investment fees. This may seem like a small percentage. However, it can become a significant amount over the duration of a sponsored retirement plan.
Asset Custody Fees
Similar to 401K investment costs, asset custody fees include the cost to manage the funds. This is a more transparent way to track 401K costs. Usually, the asset custody fees are less than 0.10% of assets annually. This is a more scalable solution for administration fees. While these fees can be more reasonable compared to percentage based administrative fees, you should still watch these small business 401K costs as they could impact your employees as well.
Undisclosed Or Hidden Costs
Often times, small business 401K plans can include undisclosed or hidden costs. Thanks to legislation that was passed in 2012, service providers are mandated to disclose all the fees associated with the plan. However, it can be difficult to find these costs upfront. These types of plans usually include revenue sharing terms where you and your employees could end up overpaying for the plan. You need to do your due diligence to find a 401K plan that discloses every fee in a transparent way.
The costs of 401K plans for small business can be expensive, but worthwhile for employee retention. You will need to shop around to avoid paying high setup costs. Secondly, business owners need to understand the monthly fees for administration along with any percentage fees tied to the assets. Additionally, watch out for any undisclosed or hidden fees. Bring them to light by asking lots of questions and demanding full disclosure. By looking for these various 401K costs, you should be able to budget for a reasonable small business plan.