Business 401(k) Services / Economics

5 Reasons to Consider a New 401(k) Provider

How do you know when it’s time to change 401(k) advisers for your company?

The 5 Greatest Benefits Employers Get When They Make A Change

1. 401(k) Cost Savings

The fees and expenses paid for your plan can substantially reduce the growth in your employees’ retirement accounts—especially over time. That’s why a clear, transparent fee structure is so important. To understand the total cost of your 401(k) plan to your employees, include the fees they are paying (from all providers and for the investments), your plan's participation rates, and your employees' retirement readiness—all things you can ask for from your 401(k) provider. Then, assess the services you're getting as the 401(k) plan administrator and if the 401(k) plan is meeting your business objectives. We often find plans overpay for investments and underpay for service. It's important to find the right balance for your business between pricing and services, including: investments, administrative support and employee help.

2. Better Business Fit

Every business is unique and so are the employees there. So when it comes to retirement investing, it just makes sense that small-to-medium-sized businesses need more hands-on help than a typical 401(k) adviser provides. Local advisers tend not to specialize in 401(k) plans or lack the administrative resources to support the business with deadlines, filing requirements, ways to keep your 401(k) healthy, or how to get and keep your employees focused on saving for their future. Advisers from the big brand names prefer to focus on the big employers who don't need the administrative support because they have large internal human resource departments that do the heavy lifting. These 401(k) companies may offer 401(k) plans to small businesses, but are not available to provide personalized guidance to employees or hands-on support for 401(k) plan managers.

3. Switching Providers Can Benefit Employees

Your employees expect more value from the benefits they get, and how they feel about those benefits impact their likelihood of staying with your company.

  • People like 401(k) plans: 81% of full-time workers who are offered a 401(k) or similar plan choose to participate in it.
  • Job candidates factor in a 401(k) into their job search: 81% of workers agree that retirement savings programs offered by prospective employers will be a major factor in their job search decision.*

*2019 Transamerica Center for Retirement Studies

Have you recently checked in with your employees about how they feel about their 401(k)? Use a survey or a quick poll to find out what benefit they’re getting from the adviser, and what’s important to them. Here are some sample yes/no questions:

  • Do you feel financially prepared for retirement?
  • Do you understand your 401(k) and its benefits?
  • Are you confident in your 401(k) investment choices?
  • Would you like the opportunity to meet one-on-one with a 401(k) plan adviser?

When you have a 401(k) plan that your employees value, they participate. And good things can happen when they are saving into your company’s 401(k) plan: Your employees get on a path to retirement readiness, your highly-compensated employees are able to save up to the IRS maximum because your plan is benefiting everyone, and your plan passes compliance testing.

4. 401(k) Investment Options

Determining the investment lineup (what investments you offer to your employees through the 401(k) plan) is just the first step in managing your 401(k) investment options. Instead of becoming an expert in investment lineups and fund management, you can hire a 3(38) Investment Manager, and they’ll do more than just recommend common investments. A 3(38) Investment Manager chooses, monitors, evaluates, and updates your fund lineup with the best investment options for your employees. The best advisers assess the funds based on a lot more than a Morningstar rating and provide rationale for changes. Plus, they take on your fiduciary responsibility for managing the fund lineup. 

Some other things to look for when considering investments as a key factor in changing service providers includes:

  • Ease: Are there funds for employees with a range of investment styles and needs?
  • Goals: Can your employees choose their investments based on their long-term goals?
  • Skills: Does your adviser have the skills and experience to effectively manage your fund lineup?
  • Education: Do your employees have access to an investment professional who will guide them on basics like budgeting, savings rates, compound interest, and on complex topics like market trends?

5. Ease of Switching 401(k) Providers

A good 401(k) adviser will do as much as they can to make the transition and the entire relationship easy for you. From laying out the process, to sending reminders and taking care of paperwork, you can rely on them to start your company on the right page. Plus, you don’t have to change other service providers (like your recordkeeper and TPA) in order to change 401(k) advisers. The best 401(k) advisers will give you a dedicated point of contact from the time you say “yes I want to hire you” throughout the entire time of the relationship. Ideally, they won’t be paid on commission, and therefore won’t be focused on selling you extra products and services you and your employees don’t need.

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