Though commonly offered by large businesses, 401(k) plans used to be very expensive for small businesses; the rep we spoke with said that it previously cost between $5,000 and $10,000 per year to run this type of plan. Luckily, there are now plan providers like ShareBuilder 401k that have small business 401(k) retirement plans with lower costs. Here's what you can expect to pay.
Safe harbor 401(k). If you're switching to ShareBuilder 401k from another plan and rolling over $500,000 or more in plan assets, you may be eligible for lower setup, administration, and asset management fees than those listed here. Also, as your plan assets increase, your administration costs decrease; they're typically free for plans that reach or exceed $5,000,000 in assets.
- Setup fee: $495.
- Administration costs: These fees start at $95 per month, which covers up to 10 plan participants.
- Plan termination fee: $1,000. There's no contract length for your plan, so you can cancel at any time. However, you will pay this fee. Every 401(k) plan provider charges this fee to cover the costs of transferring assets and filing paperwork with the Department of Labor. This is an average dollar amount for this fee.
Traditional 401(k). As with the safe harbor plan, you may be eligible for lower fees if you're rolling over assets of $500,000 or more. Likewise, your administrative costs may be waived when your plan reaches $5,000,000 in assets.
- Setup fee: $750
- Administration costs: Start at $110 per month, which covers up to 10 plan participants
- Plan termination fee: $1,000. As with the safe harbor plan, there's no contract length, so you can cancel at any time, but you will pay this fee. All plan providers charge it, and the amount is average for this fee
Owner-only 401(k). Also called an individual 401(k) or solo 401(k), this plan is only for business owners with no employees. Businesses with multiple owners are eligible, as are owners' spouses who work for the business. Pricing may be waived for plans that have $250,000 or more in assets.
- Setup fee: $150
- Administration costs: Start at $25 per month, per owner
- Plan termination fee: $150
Incidental plan sponsor fees. There are several fees for nonstandard services that are only charged if you these services. For example, if you need your IRS Form 5500 amended, it costs $100. Or, if you switch from a traditional 401(k) plan to a safe harbor 401(k), you would pay a $250 product migration fee. The full list is available on the company's website.
Plan participant costs: For all three plan types, participants pay the following fee.
- Asset management fee: 0.75%. This fee is lower than the industry average and covers the costs of managing your investment portfolio, such as fund rebalancing, as well as investment advisory services.
- Fund expense ratio: 0.06 to 0.08% for model portfolios, which is also low. The ratio is variable for custom portfolios, but there aren't any transaction fees on the ETFs you purchase and trade.
Incidental participant costs: There are also fees for specific participant events. A full list of these fees is available on the webpage link above.
- Loan origination fee: $75
- Loan maintenance fee: $75 per year
- Distribution: $75 per withdrawal
- Required Minimum Distribution: $100
Safe harbor 401(k)s differ from traditional 401(k) plans in that they require employers to match or contribute a certain percentage to employee accounts, and contributions are immediately vested; matching and vesting are optional with traditional 401(k) plans. These Safe Harbor rules satisfy the IRS's nondiscrimination requirements, allowing business owners and highly compensated employees to make maximum contributions to their own 401(k) retirement accounts.
Here's a sampling of what ShareBuilder 401k offers with its Safe Harbor 401(k) plans.
Fiduciary support. ShareBuilder 401k serves as the plan administrator, custodian, record-keeper and ERISA 3(38) investment manager. As the plan sponsor, you oversee payroll contributions and complete a year-end checklist.
Account setup. To get started, you can fill out an online form and have an advisor call you, or you can call the company to immediately speak with an advisor. He or she will provide you with a quote specific to your business and go over plan details with you. You can then begin filling out the online plan paperwork. Your advisor can walk you through the setup process if you need help. It then takes a few weeks to roll out the plan.
Investment options. Participants can choose from five managed portfolios, or they can customize their portfolio from ShareBuilder's selection of low-cost, exchange-traded funds (ETFs) from Vanguard, iShares, PowerShares and State Street.
Fund research tools. On the company's website, you can view the roster of ETFs and managed portfolios. Each fund is linked to a Morningstar profile with information about the fund's strategy, historical performance, asset allocation and other details.
Advisory services. ShareBuilder 401k has an investment committee that helps plan participants diversify their investments by managing its model portfolios and investment roster of ETFs.
Reporting requirements. For both safe harbor and traditional 401(k) plans, you're required to submit the IRS Form 5500. The individual 401(k) plan carries this requirement as well, once your plan assets are $250,000 or more. ShareBuilder 401k prepares the form for you so all you need to do is sign and send it.
Loans. All three plans allow participants to take out loans against their 401(k) of up to 50 percent of their account balance, though it may not exceed $50,000.
You can call ShareBuilder 401k or fill out the form on the company's website to have an investment advisor call you. You'll work with this individual during plan setup and for plan support for the life of the plan. For other issues, you'll work with the company's administration team.
When we called the company as part of our testing, posing as the owner of a small business, we were quickly connected to an investment advisor who was personable and knowledgeable. He volunteered information about pricing, patiently explained the difference between different types of 401(k) plans and offered to email us a quote and additional information about the plans, which we received less than 15 minutes after our call ended.
If you prefer to learn about the company's offerings or troubleshoot issues online, you can read the basics on the ShareBuilder 401k website, but there isn't a searchable knowledgebase, blog or other resources. You can, however, find some of this information on the ShareBuilder website, but a lot of it hasn't been recently updated.
As mentioned above, the ShareBuilder 401k website doesn't have the same level of information as some of its competitors. This may be frustrating for small business owners who would rather find information online than call the company, but it posts its pricing, as well as a good overview of its offerings, and when we called the company, we had a positive interaction with the advisor we spoke with, who was happy to answer all our questions. It also lacks a mobile app, but the advisor we spoke with assured us that its website is mobile-friendly.