To control 401k plan costs employers must consider those relating to establishing and maintaining the 401k and the 401k contributions. The former 401k costs include the time spent by employees on the 401k and the fees paid to external 401k service providers. Using a consultant to help design and select the providers can result in significant savings and help insure the plan's successful future.
The time spent by employees when establishing and maintaining a 401k plan can be substantial and difficult to measure. It includes the valuable time of key financial and human resource personnel when selecting service providers, enrolling participants, providing employee communication and meeting the reporting and disclosure requirements. Although these costs may be significant, they are necessary for establishing and sustaining a prosperous 401k program.
The control of fees to outside service providers involves each of the 401k plan functions of design, administration, recordkeeping, investment and communication. Negotiating with the organizations providing 401k services, switching to other providers, performing tasks in-house, or shifting assessments to employees are general approaches that can help reduce expenses.
It is important to select the proper service providers for 401k plan administration and recordkeeping upon establishment, since switching of this function may be difficult; a new provider must review the history of the case and may assess a takeover fee. 401k recordkeeping expenses can be decreased by performing the recordkeeping in-house, staff permitting. Rather than have 401k recordkeeping charges switched to employees' accounts, it is preferable to do so upon establishment of the plan.
401k investment costs can be lowered by eliminating unnecessary assessments, such as the contract fees that many insurance companies charge or the wrap around fees mutual funds impose on funds other than their own. Negotiating with current service providers should always be considered.
Good employee communications can increase employee enrollment and possibly reduce costs. Performing in-house communication with participants using packaged goods such as computer software programs may help, but it may be better to leave this function to communication professionals. Unnecessary communication materials should be eliminated.
Employers can directly decrease their costs by reducing their 401k contributions. An increase in employee deferral contributions may produce a reduction in the employer's 401k contributions needed to satisfy nondiscrimination requirements. Employee deferrals can be increased by improving employee communications, selecting the most prudent employer matching contribution, providing greater availability for loans or having a mandatory enrollment program. The 401k plan employer contribution can also be reduced by delaying participation as long as possible, not providing a contribution to some participants (remembering the nondiscrimination requirements) and by delaying vesting.
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