Choosing the right 401(k) provider is vital for small business owners to properly support their employees’ retirement savings and scale their companies and meet goals. With several providers to choose from, it’s important to understand the key factors that differentiate them so you can make the best choice for your business. Below is a breakdown of some of the providers you’ll likely run into first, and considerations to keep in mind with your small business 401(k) plan.
Key Considerations for Small Businesses When Selecting a 401(k) Retirement Solution
Fees
Different providers offer different cost structures, and may have different price breakdowns based on services, asset growth, investment options, and more. You’ll want to create a plan for yourself beforehand that keeps your budget, savings goal, and income in mind so your plan will always align with your needs.
Plan Type (traditional, Roth, match)
There are a variety of plan options to choose from, but not every provider will offer all of them. They all offer something different like tax-free withdrawals or higher employee participation, so be sure to research!
Investment Options
A diverse portfolio is key to maximizing wealth faster, and thankfully, many providers offer broad investment options like low-cost index funds, mutual funds, etc.
Customer Service & Support
Reliable, world-class customer service is a must for your plan management strategy. A strong support team will be able to help you with provided resources and prompt responses, no matter what questions you have.
Reviews
Customer reviews–both good and bad–can offer insights into a provider’s reputation, platform usability, and overall satisfaction from their client base. Check out feedback across a variety of sources before making a decision.
Platform Ease and Experience
An innovative, user-friendly platform makes recordkeeping, payroll, and administration simple. Even more, a seamless interface will help you easily maintain compliance without worrying about extra costs or IRS consequences.
Ubiquity
Fees
Ubiquity offers a flat-fee pricing model for small businesses, and three different 401(k) solutions: Saver(k) at $97 per month, Custom(k) at $177 per month, and Reserve(k) at $257 per month.
Pros for Small Businesses
- Cost Predictability: Flat fees means owners get one, transparent cost for their 401(k), making budgeting and saving straightforward and simple.
- Intuitive Technology: Seamless payroll integrations and robust recordkeeping and administration technology makes plan maintenance much more manageable.
- Diverse Investment Options: A wide range of investment choices allows workforces to tailor their portfolios and build wealth based on their specific goals.
Fidelity
Fees
While they do not provide specifics, Fidelity boasts a straightforward, low-cost pricing structure along with various plan fees, like a $500 one-time fee for activation, and $300 per quarter for administration. They do provide a calculator for employers to see how much their plan could cost them but it would also be beneficial to speak to their team for more insights.
Pros for Small Businesses
- Extensive Resources: Comprehensive tools and educational materials are available for employers and employees, helping to boost literacy and confidence with building savings.
- Simplified Investment Options: A curated fund lineup meets employers and employees where they are and simplifies the decision process.
- Affordable Pricing: Fidelity plans are designed to be straightforward and cost-effective, making retirement security more accessible for small businesses.
Vanguard
Fees
Vanguard is committed to providing low-cost investment options and 401(k) solutions. But, specific costs can vary based on plan customization and selected services. You can consult with a Fidelity expert for detailed pricing for your business.
Pros for Small Businesses
- Comprehensive Plan Options: A variety of plan options are available, like SEP IRAs and SIMPLE IRAs, helping employers meet their unique needs.
- Personalized Financial Advising: Clients can receive one-on-one guidance from Vanguard’s experts and get actionable advice on everything from investments to reprioritizing goals.
- Affordability: Fidelity is known for low-cost investment options and affordable plan designs that enhance accessibility for employers.
ADP
Fees
ADP’s 401(k) costs depend on different factors like the range of plan services chosen and business requirements. It’s best to discuss pricing with one of their experts so they can provide a tailored quote.
Pros for Small Businesses
- Attentive Customer Support: ADP’s customer service team is known to be especially responsive and helpful, helping businesses have more peace of mind when questions or concerns come up.
- Integrated Payroll: As a leader in payroll management, ADP offers seamless integration for employers, simplifying administration overall.
- Comprehensive Plan Options: A variety of plans are offered to employers, like a traditional 401(k), Roth 401(k), SIMPLE IRA, and SEP IRA.
Charles Schwab
Fees
Charles Schwab’s 401(k) costs are dependent on a business’ needs and solutions. To get personalized pricing information, it’s best to consult with one of their experts.
Pros for Small Businesses
- Diverse Customization Options: 401(k)s can be tailored to different business sizes and needs, and employers have access to many different features that can help them maximize their plans.
- Comprehensive Services: Plan services include design assistance, administration, and resources to help boost employee financial literacy and wellness.
- Highly Reputable: Known as a legacy company, Charles Schwab has a strong track record with helping employers and employees gain retirement security.
How to Compare & Choose the Right Plan Design for Your Small Business
As you explore plan providers, you’ll want to learn about their approach to plan design. Different providers provide varying levels of plan customization, so your design will ultimately depend on what they offer. A good place to start is with the three most common types of 401(k)s below, and understanding how each aligns with your needs, and then tailoring it with your chosen provider.
Traditional 401(k)
A traditional 401(k) is most commonly known as employer-sponsored plans that allow eligible employees to participate (or opt out) and contribute pre-tax earnings, reducing their overall tax liability. While this type of plan can have several IRS requirements that need to be followed, the benefits are usually very robust and offer significant savings opportunities for both employers and employees.
Simple 401(k)
A Simple 401(k) is designed to make retirement planning as easy as possible for businesses with 100 or less employees. From setup to ongoing maintenance, processes are streamlined and major benefits are offered, like immediate vesting for employees and mandatory employer contributions. Additionally, this type of plan is exempt from annual nondiscrimination testing, making it ideal for employers who are looking to save more money and time.
Roth 401(k)
A Roth 401(k) is becoming more popular with people who expect to be in a higher tax bracket by the time they retire, as withdrawals in retirement are tax-free (as long as certain requirements are met). With this type of plan, employers can still match contributions, but their portions will be taxed once they’re withdrawn. Despite this, Roth 401(k)s are still a great way to diversify retirement income without complex implementation or maintenance.
401(k) Vesting Schedules for Small Business
Vesting schedules are incentives that influence employee satisfaction and loyalty by allowing them to gain ownership of employer contributions over time. There are two types commonly used by small businesses:
Cliff Vesting
After a set number of years, employees can gain 100% ownership of their employer contributions with cliff vesting. If the employee leaves before they complete the specific period though, they forfeit the funds. By offering the possibility to maximize their savings faster, this structure encourages long-term retention.
Graded Vesting
With graded vesting, employees gradually gain ownership of their employer contributions over a set number of years. For example, an employee might vest 25% of their contributions over four years until they reach 100%. Not only does this encourage long-term retention, but this structure usually offers partial benefits for employees if they leave earlier.
Immediate Vesting
With immediate vesting, employees instantly have full ownership of their contributions. This can be very helpful with attracting talent and encouraging them to participate in the company 401(k) immediately, especially as they can keep all their contributions if they leave their job.
Conclusion
After you’ve explored all your options, your next step is to choose your best-fit provider and get started with the implementation process. There will be several steps required to set up your small business 401(k), but your provider will help you navigate the entire process and get you and your team set up for success.
At Ubiquity, we help owners simplify the plan design process with flat-fee, highly customizable 401(k)s that meet them where they are. With broad investment options, innovative payroll and administrative support, higher contribution options, and much more, Ubiquity has a plethora of retirement solutions that make saving for the future easier than ever.
