Any employer who likes to offer solid benefits to their employees like 401(k) doesn’t for sure mean that they are necessarily offering them the best mechanism for their retirement, especially small business owners. The cost of 401 k Plan may amount to more than two percent of plan assets, hence, should be careful while calculating costs of the plans.
According to Deloitte and Investment Company Institute 1, above 74% of plan’s cost is attributable to expenses of investment. Therefore, ensuring plans offering investment options with minimum expense ratio is one of the best options to offer a low cost 401(k) plan.
Join MEP (Multiple Employer Plan)
A Multiple Employer Plan allows various unrelated entities to join together to become a part of similar 401(k) plan. For a small business owner, it is highly possible that joining to a Multiple Employer Plan might be an option that is cheaper as compared to separate plans whereby the employer is subject to lowest charges just due to a lowest participant count or the size of the asset. In addition to this, a Multiple Employer Plan allows an employer to access to comparatively low cost investments option due to the combined size of such plan.
Because of each dollar paid for the fee of participants reduces the nest plan of their retirement plan. It is essential that consideration must be given to each and every single possible means to lower the cost of the plans. These following suggestions will be extremely helpful for starting the mission to provide a great yet low cost 401(k) plan to the employees. Explore these 3 subjects to get more knowledge about investment for your employee future and your company as well.
- 401(k) Defined Contribution Fee Study (in 2009) and Deloitte & Investment Company Institute
- The World Report and US News, ‘Why the Investors are Flocking to the Index Funds”, dated March 16, 2010.
- How ETFs Had Re-shape Investing, Wall-Street-Journal on April 18, 2011.
Participants with Low Balances
If the document of your plan allows you to force out the terminated participants with balances lower than $5,000, you should be diligent for doing so, particularly if your record keeper or TPA is charging a participant fee. In addition to this, if your plan includes up to 100 participants, you can lower your all the participant count by distributing balances of these participants whereby you don’t need to incur the added expenditure of performing a yearly audit and you can make it even better by having professional MEP consulting services.