Ten Features Small Businesses Should Look for in a 401(k)

In today’s competitive market, it’s important to offer benefits that can help you attract and retain great employees — and that includes a 401(k). In fact, 88% of employees say a 401(k) is a must-have benefit.

401(k) plans can vary drastically and the right plan can have a big impact. The stakes are high: 401(k) features can affect an employer’s costs as well as employees’ financial futures.

Get started with an affordable, full-service 401(k) plan.

How does your company’s 401(k) measure up?

Let’s review 10 important features to help you figure out what to look for in a 401(k) plan.

1. Automatic enrollment

A 401(k) plan that uses automatic enrollment (or even escalation of contributions), can help employees save more. It can also boost both participation and contribution rates.

2. Payroll integration

A modern 401(k) doesn’t only save the plan administrator time, but also reduces chances of error. Having a 401(k) that can automatically adjust contribution amounts can help reduce paperwork.

3. Compliance support

Look for a provider that can offer support with compliance, including nondiscrimination testing, filing Form 5500, and more.

4. Helpful customer service

Customer service is about going above and beyond the industry standard, however, at a minimum, your provider should offer a smooth sign up/setup process, online access to the plan, online transactions, free rollovers, easy to understand fee disclosures and help when you need it. Other customers can be a good source for reviews.

5. Easy to set up and administer

Look for features that make offering a benefit easier — not more labor-intensive — for your HR team (or whoever serves as your company’s administrator). This might mean looking for automated features, such as participant enrollment. Offering a great 401(k) shouldn’t mean more paperwork.

6. Investment options

Investment strategies should not be one size fits all. We offer many low-cost funds available on the market, including those from Vanguard, Charles Schwab, BlackRock, Fidelity, and many more. In addition, we offer built-in investment guidance with personalized features to help you find the best option for you.

7. Low-cost investments

Just as interest compounds, so can fees. Look for a plan that offers low-fee investment options, such as low-cost index funds. They tend to have lower expense ratios (and outperform) actively managed funds.

8. Low, transparent fees

Be sure to get clarity on all the fees that your 401(k) plan provider charges, and when these charges apply. Several plans have come under scrutiny in recent years because of their high and/or hidden fees!

9. Employer match

While not mandatory, many employers match a portion of their employees’ 401(k) contributions. Make sure a plan has easy-to-understand eligibility requirements, a strong matching contribution formula, quick vesting of employer contributions, and low employee contribution minimum to qualify for a match. Read more about whether employer match contributions are tax-deductible.

10. For younger employees: A Roth 401(k) option

A Roth 401(k) allows employees to make after-tax contributions (and this could be in addition to their pre-tax contributions). The benefit here may skew for more junior employees who anticipate that they’ll be moving into a higher tax bracket in the years to come, i.e. in retirement. (Note: Even if you choose a Roth 401(k) option, all employer contributions to your 401(k) will be made on a tax-deferred basis. This is a requirement from the IRS.)

Find the best 401(k) for your company

If you’re a small business owner and want a 401(k) that’s made for SMBs, consider Human Interest. Send us any questions about 401(k) plans you may have. We’d love to help!