Finding the Best 401(k) Plan for Small Business Owners

LAST REVIEWED Feb 18 2020 8 MIN READ

By The Human Interest Team

Whether looking to add a 401(k) plan as a new benefits option for your employees or looking for a new plan administrator, find the best 401(k) plan for small business can be challenging. We’re here to help with tips on how to find the right plan, plan providers, and 401(k) alternatives. 

4 Factors for Finding a Great 401k Plan

Finding the right 401(k) plan for your small business and employees can be overwhelming. Almost every financial company offers some type of 401(k) option, and financial advisers are fighting for your business. Keeping these four factors in mind when looking for a 401(k) plan can help you in selecting the right one: 

  1. Costs and Plan Fees – It’s essential to understand what costs and fees are associated with any 401(k) plan you are considering, so they don’t end up eating into investment returns. When considering a plan, get clear answers regarding setup costs, investment management fees, administration fees, wrap fees, 12b-1 fees, or mutual fund costs. When comparing various plan options, look at each plan’s total costs. The bottom line, the lower the fees a plan has, the better it will be for both your business and employees.  

  2. Investment Options – 401(k) providers can provide you with very few to unlimited options for investing. Having more options is generally better as it allows you to select funds best for your particular small business 401(k) plan. It’s especially important to have low-cost index fund options for your employees. 

  3. Customer Service – Choose a company with a history of providing outstanding customer service. Selecting a low-cost provider isn’t going to be beneficial if you and your employees can’t get the help they need when they need it. Check out online reviews or ask for small business owners around you for referrals. 

  4. Robust Administration and Record-Keeping – Finally, select a provider with a solid system established for plan administration and maintaining records. Look for a company that has the resources necessary to manage the plans they administrate, uses a continuity plan, and keeps off-site data backups. The worse thing to happen is poor planning resulting in your employee’s 401(k) records being lost. 

Evaluating the Best 401(k) Providers

When deciding which 401(k) provider is best, small businesses typically look at third-party administrators, payroll providers, HR companies, traditional banks, and mutual fund companies as possible options. After reviewing several types of 401(k) providers, we narrowed our list of the best using the following criteria: 

  1. Administrative costs

  2. Ease of integration

  3. Employee and employer customer service

  4. Investment options

  5. Reputation

  6. Role in the process

There are numerous 401(k) plan options available. If you already have an established relationship with an administrator or provider, they would be a great place to start. If not, we’ve done some research for you and have our suggestions of the best 401(k) providers for small businesses below. 

The Best 401(k) Providers for Your Small Business

Ready to start a 401(k) plan for your small business? Here are five 401(k) companies to consider: 

T. Rowe Price

T. Rowe Price offers affordable and impressive 401(k) options for small businesses. The fact T. Rowe Price doesn’t have set up costs or charge employer fees has many wondering how they make their money. In truth, their primary focus is on being a mutual fund company. They hope that by offering minimal or no cost 401(k) services, they can guide investors towards their mutual funds, which is where they make the majority of their profits.

With advantages like a self-directed brokerage option, access to 100 no-load mutual funds and 5,400+ nonproprietary funds, no set-up costs, and no annual employer fees, many small businesses can overlook their downfall of having no 24/7 customer service. If their slate of options, including non-T.Rowe Price funds would work for your employees; this is an option to consider.

Charles Schwab

Similar to T. Rowe Price, Charles Schwab foregoes many of the fees other 401(k) providers charge in an attempt to attract potential investors to mutual fund products the company offers. For small business owners and employees that like mutual funds offered by Charles Schwab, this could be an attractive combination of good variety and low costs. With advantages like no opening fee, 24/7 customer service, no account minimums, and no maintenance fees, many are willing to overlook the company’s basic education and research center. 

Sharebuilder 401K

Sharebuilder 401k primarily focuses on offering mutual funds and ETFs that significantly reduce typical fees found with mutual funds that are actively managed. This makes them an excellent option for small businesses with employees who are interested in low-fee passive investing. Sharebuilder 401k does have a 0.75% asset management fee that may offset these benefits, so careful consideration of these fees compared to other options is needed. Sharebuilder 401k’s minimal $95 a month plan fee and an impressive variety of low-cost ETFs and index funds help make up for not having 24/7 customer service and asset management fees. 

Ubiquity

Employer costs can add up with Ubiquity if you’re not careful. However, its structure of a flat $5 a month participant fee may result in lower costs over time than fees based on asset percentages, especially for larger accounts. At the same time, accounts with lower balances get hit rather hard in terms of their total asset percentage. Ubiquity’s large variety of options for investing and $5 a month participant fee may outshine its $115 a month employer fee and the fact they have no education and resource center or tools for some small businesses.

Human Interest

Human Interest in a Silicon Valley startup, relatively new to the 401(k) industry, is committed to excellent customer service with fair and transparent pricing. An investment platform for administering 401(k) plans, Human Interest is a great option for owners of small businesses open to using an online provider. Compared to other 401(k) providers, Human Interest has very low costs, partially due to its sales model of skipping over financial advisors and marketing directly to small business owners. 

Human Interest is a great, low-cost alternative to traditional brick and mortar 401(k) providers. Getting started is easy; just visit their website and complete the simple contact information form so a company representative can follow up.

We believe that everyone deserves access to a secure financial future, which is why we make it easy to provide a 401(k) to your employees. Human Interest offers a low-cost 401(k) with automated administration, built-in investment advising, and integration with leading payroll providers.

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