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How to Pick the Right 401(k) Provider


It's one of the biggest decisions you'll make for your company: Who will help you offer a retirement plan to your staff? Research financial firms that provide record-keeping and third-party administration services for 401(k) plans: mutual fund and insurance companies as well as brokerage firms. Look for an established business with a first-rate reputation in the 401(k) arena — a company that now and for many years to come provides extensive resources and excellent customer service.

Contact owners of businesses similar to yours to discover their experiences with plan service providers and ask what companies they'd recommend. Get input from your own financial adviser and/or accountant. And of course, we are happy to help you get started.

Turn as well to the U.S. Department of Labor and the IRS. Both have extensive information about 401(k) plans on their websites. Based on your needs and the specifics of your company, you may want a traditional, a safe harbor or an automatic enrollment plan. You should make sure your provider can work with the kind of plan that's right for you.

Keep in mind these details

Obviously, you'll be making sure that you select competent service providers, while keeping away from superfluous services that are expensive and drag down participant investment returns.

You want to ensure your plan doesn't pay fees for services that participants won't use, so you've got to be sure that you understand the services comprising the plan, while determining which of these require professional assistance to deliver.

In summary, you'll look for plan administration and investment management: You want fund custody services, record-keeping and third-party administration, as well as plan-level and participant-level services on the investment management side.

In interviewing service providers, confirm they deliver the services you want and their "all in" fee for these services. Your plan will pay reasonable fees for the professional help it needs, improving participant returns while mitigating your fiduciary liability.

Getting the plan going

Now that you've chosen a service provider and the type of plan that's best for you, you can work to get the plan established.

Setting up your 401(k) plan typically involves four steps:

  1. You'll receive an adoption agreement and basic plan document from your service provider specifying the plan's provisions.
  2. You'll arrange a trust for the plan's assets to ensure that they're used only to benefit participants and their beneficiaries.
  3. You'll establish a record-keeping system to track and attribute contributions, earnings and losses, investments, expenses, and benefits distributions — functions your provider will take on. Careful record-keeping helps you and the service provider prepare the plan's annual filing with the DOL and IRS.
  4. You'll provide your employees with all the necessary information to participate in the 401(k) plan. You'll need to notify those who are eligible, provide a summary plan description and distribute information about the plan's benefits, including pretax contributions and compounded tax-deferred earnings.

Establishing a 401(k) plan for your business makes your company more attractive to job-seekers, helps you retain current staff and offers opportunities for tax savings, while allowing you to garner valuable retirement benefits too.


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Kim & Lee
Kim & Lee, LLP
2305 W. 190th St. Suite 100
Torrance, CA 90504
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Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.
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