Congratulations, you’ve decided to implement a retirement plan for your business! Where do you start? Don't worry, we'll take you through every step of the process, but first, it's important you understand a few things about 401k Companies. By the end of the article you'll have a better understanding of what you need to get started and how the pieces fit together.
Well, first thing’s first: You’ll need a 401k provider or a Third Party Administrator (TPA). Many companies that provide benefits may play a part in helping set up your retirement plan. For example, maybe you’ve got a payroll company sending you emails once in a while reminding you that they do 401(k) plans. Perhaps you have a personal wealth advisor or insurance agent that would love to assume the task of directing more of your assets. The problem is that all of these types have vested interests in their personal products (of course). The first thing you should do if you'd like to set up a 401k, is to contact a TPA.
Below we'll talk about other players in the retirement plan game, but after gaining more understanding about how all the pieces fit together, get back to step 1.
Payroll companies have limited plan designs available and often force plan sponsors to learn retirement plan jargon to get them the data they need. Financial partners are really good at investing but not necessarily the specifics of retirement plan regulations. You will work with your payroll company to deduct the participants' deferrals and your financial advisor will help with the investments. But for the retirement aspect, why not ask a retirement plan professional?! Who better to ensure that the plan is properly operational? Okay, but which 401(k) company is the one you need? Each firm does business differently and all think they do the job better than the others! Here are some of the primary differences of 401(k) companies:
- Producing vs. non-producing TPAs
- Producing TPAs do a TON of work every day on your plan from share pricing to statement generation to compliance testing. Participants will work with them to change their investments and request distributions. They get commissions from certain investment products and their fees are normally in proportion to the plan assets.
- Non-producing TPAs, like BRI, leave the pricing and regular statements to the investment custodian. Participants will normally recognize this entity as the retirement plan provider since that’s where their money resides. The primary function of this kind of TPA is to ensure the plan’s annual compliance with IRS regulations so they request data once a year to perform their work. Their fees are normally based on the number of participants in the plan.
- Bundled vs. unbundled retirement plans
- Bundled retirement plans are offered by mutual fund companies or banks. All the investing and compliance is done under the same roof, so the services are “bundled” together. Large companies do well with these products because the bank makes enough money from the investments that they can afford decent administrators. Small companies find it more difficult to get the service they need.
- Unbundled retirement plans are those with one entity performing the investing and banking and another performing the compliance work. Large companies do well with these products, too, but are often offered the compliance work “for free” by the bank and discouraged from using a TPA like BRI. Small companies are often relieved to find a competent TPA to work with since they have someone to take care of the regulatory work for them.
- TPA administrators that maintain a “book” of business vs. those that don’t
- Many TPA firm’s administrators are responsible for finding new clients and performing the work on the plan themselves. This allows for a meritocracy when it comes to each administrator’s compensation; the more clients they have, the more money they make!
- Other TPA firms have sales staff whose sole purpose is to meet with advisors and prospective clients to drum up business. They are usually paid on commission and have varying experience performing administration work. Once the account is sold, they are transferred to their ongoing administrator.
- Yet other TPAs, like BRI, don’t maintain dedicated sales staff at all and their employees are either plan administrators or support staff. Administrator’s caseloads are prescribed for them and their sole task is to be available for their clients when they need them and perform annual compliance work.
So which TPA is right for you? Us, of course! Our administrators are the cream of the crop and are trained to identify when their client’s plan is not operating at its fullest potential. Contact us here! We are also regularly engaged to analyze plans being audited by the IRS and/or DOL or run by other TPAs to reduce the cost to meet compliance standards. We know the rules inside and out, so we can be a valuable resource if you find yourself in a potentially expensive “fix” situation or if you’re looking to start a new plan and want to make sure it’s done right the first time! Our administrators want to administer plans, not sell more of them. Retirement planning is what we love to do, so let us help you!
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