Small employers band together to offer 401(k) Plans with reduced fees
Recent legislation enacted by Congress provides a new option for small employers to offer a 401(k) Plan to their employees. These are called Pooled Employer Plans or PEP. The legislation (SECURE Act passed in 2019) was put together to allow small employers that are unrelated to band together and offer a plan across their employer groups to reduce fees associated with offering a 401k plan, provide enhanced investment offerings, and be attractive to plan providers that might otherwise have not wanted to work with very small companies looking to offer a 401k plan to their employees.
If this sounds like a good option for your company, we have listed some areas below to consider as you evaluate the viability of this type of plan for your employees.
- What are the fees associated with the plan? The fees should be lower than traditional plans. Beware, however, of hidden fees. Often fees are included in the revenue generated from the investments (lower earnings due to fees taken out by investment companies/managers, etc.).
- Who will be responsible for the administration of the Plan? How will these responsibilities be split between the employers included in the PEP? What services will the provider offer and what can they not accommodate (examples include Plan audits, Form 5500 completion and filings, discrimination testing).
- What investment choices will be available? You want a diversified portfolio but as the options increase, often, so do the fees. Also, what investment option will be the default option if your employees fail to make investment elections? How will the investment selection process work?
- How will the withholdings from your payroll runs be deposited with the 401(k) provider? This can often involve significant manual intervention so make sure whatever choice you make fits with your payroll processing service.
- Review the participant features. Are Roth contributions allowed? What types of distributions are included?
- Can Employer contributions be added? If so, what types? Are matching contributions allowed? Are discretionary only contributions allowed? Can the Plan accept Safe Harbor matching?
- What type of employee communication, education, and planning tools are available to you? Will the provider meet with your employees to answer questions if needed?
- Can the funds be rolled out of the PEP into another plan? This question applies to both participant level transfers and also full Plan transfers. How easy is this process? What are the fees involved?
Choosing a 401(k) Plan provider is a significant step for any company to take. While the above is not a complete listing of items to consider, we hope this listing will spur additional considerations as you review options relating to the new PEP options for the 401(k) Plan design.
Retirement plans can be very complex. As an innovative firm Summit CPA specializes in 401(k) audits. We have the ability to offer assistance entirely off-site with little or no distraction to your daily office routine. We also offer flat-fee pricing so there are no surprises on your bill when the job is complete. For assistance contact our office at (866) 497-9761 to schedule an appointment.