401k Comparisons

Thinking of Changing 401(k) Providers? Here’s What You Should Know If you’re considering changing 401(k) providers, be sure to spend some time assessing your current situation and prioritizing your criteria. Perhaps you’re unhappy with the amount or quality of support. Or you’re hearing too many complaints from your employees. Or your employees aren’t receiving the education and communications you had hoped for and engagement in the plan is low. Or you’ve learned you’re paying more than you should be (this is more common than you might think!). Or you're making other changes to your tech stack (payroll provider, etc). Or you’ve simply outgrown the provider you hired when all your organization needed was a bare-bones 401(k) plan. Whatever the reason, it’s not unusual for companies to change their 401(k) provider from time to time. Changing providers does not mean that you are terminating your 401(k) plan (which has legal ramifications including not being able to establish another 401(k) plan for a year). When you change providers the plan itself stays intact, although it is not uncommon to make plan design changes at the same time. Even if there is no specific pain point with your current provider, it’s good practice to periodically review your plan provider in light of the competition to be sure your plan is keeping up with industry best practices and that you and your employees are getting good value for your money. Before you start your search Before you undertake a search for a new provider, you should gather relevant materials on your current 401(k) plan and assess your current situation to help define which criteria are most important to you. It’s also a good time to read through your current agreement to see if it reveals information that you may not have been aware of. Although some of the areas bleed into one another, be sure to consider: Current Fees -- do you know how much you and your employees are paying all-in? 401(k) plan fees can be complicated and often include fees that are embedded within the fund expense ratios. Your fee disclosure documents, required to be provided to you, should give you the information you need to know and allow you to accurately identify all of the fees paid by you or the participants (charged against plan assets). Ongoing fees may include recordkeeping fees, audit fees, compliance fees, investment management fees, legal fees and fund fees. In addition, you’ll want to be sure you capture one-off fees such as amendment fees, termination fees and (for participants) individual service fees such as loan fees and QDRO fees.Fees can vary greatly, especially when it comes to the number of assets in a plan. Smaller plans often pay significantly more than larger plans simply because they lack economies of scale. If your plan has grown substantially and you have not seen a fee reduction, chances are you may be paying too much.  Fee comparisons can be hard to come by, but one source is the 401k Averages Book. Fiduciary Responsibilities - be sure you know what level of fiduciary responsibility your current provider assumes and whether you want your new provider to have that same level of responsibility, take on more fiduciary responsibility, or whether you’re comfortable taking on more fiduciary responsibility yourself.With respect to investments, the provider may be an ERISA 3(21) fiduciary, who provides only investment recommendations; an ERISA 3(38) fiduciary, who provides dictionary investment management; or may not be a fiduciary at all. With respect to administration, the provider may or may not provide ERISA 3(16) services; however, there can be a wide range of functions that fall within that, so refer to your agreement to be sure you know exactly which services they are responsible for (and which be default fall to you as plan administrator). Current Investments -- This may be dependent upon the level of investment fiduciary responsibility, but for starters, what is the investment philosophy of your current provider and does that approach align with the needs of your employee demographic. Remember that as a fiduciary, you have an obligation to operate the plan for the benefit of your employees, so this isn’t about what you or a handful of managers want from an investment perspective; it’s about what would serve the best interests of the majority of your employees. You’ll want to be sure you know: What are your current investment options? What kinds of vehicles are used (mutual funds? ETFs?) Are funds passively (i.e., indexed) or actively managed? Are funds reasonably-priced? Is participant investment advice incorporated into the approach? For an additional fee? How personalized is the advice? What is the default investment (used when participants fail to make an investment election and money is deposited into their account), and how personalized is it to each participant? Do participants have investment flexibility? Current Plan Design - what features (automatic enrollment, Safe Harbor, etc) about your current plan do you plan on retaining? Are there features you would like to add/change/remove when you change providers? Now may be a good time to consider these. Current Service -- Although you and other team members may have opinions about the quality and level of service to you as a plan sponsor, be sure you also gather information about the level and quality of service your employees receive from your current provider. Payroll Integration - whether or not your current 401(k) provider is integrated with your payroll provider, how smoothly have things been running? Is payroll integration something that is important in a new provider? Be sure you understand the different levels of payroll integration and which responsibilities you may retain. Compliance and Audit Support - Are you getting the compliance and audit support that you need without any unpleasant surprises? Are documents provided for your review and approval accurate and timely? When you’ve needed to consult on compliance issues, do you receive clear and helpful answers to your questions? Does the provider deliver a comprehensive audit package to you if you need it and collaborate well with your auditor? Participant Education - What kinds of educational resources are available to your employees not only when they first become eligible for the plan, but on an on-going basis as well? Does the platform help employees establish their retirement goal and track their progress toward it? User Interface - How easy is the user interface and how well does it meet the needs of your employees? Is it easy for them to make changes, find information? Financial Wellness - Does your provider help employees beyond the 401(k)? Does the platform allow them to sync outside accounts and track other financial goals? Participant Engagement - Are your participants making good use of the plan, with a healthy majority of employees making contributions at healthy rates? If not, is it because of the plan design or is it more a function of the provider's tools, resources, and approach? For instance, is there enough guidance to help people make decisions or are employees left to their own devices to determine how much to save and which funds to use? Although only larger companies are likely to undertake a full-blown Request for Proposal in the hunt to identify a new 401(k) plan, it’s a good idea to document and rank your criteria. In this way, you can be sure to cover all relevant topics with each provider under consideration and have a record of your decision-making process. The selection of a 401(k) provider is, after all, a fiduciary decision. What to expect when changing providers It may be helpful to understand the framework of the process involved with changing 401(k) providers so that you can manage expectations internally and create reasonable timelines. Typically, changing providers takes at least 90 days, with coordination and testing needed between both providers to reconcile all records and ensure accurate and timely transfer of plan assets, so you’ll want to plan accordingly. Once you have identified your chosen successor provider and have executed the services agreement, the high-level steps involved include: Notify your current provider of your decision (you may hear them refer to this as a “deconversion” process) Establish timeline for asset transfer and go live date with new provider Review your current plan document with the new provider This will give you an opportunity to discuss any potential plan design changes. Be sure to raise any challenges you have faced with your current plan design as well as any organizational developments (planned expansion, layoffs, etc) that may impact your plan Investment selection If your new provider is a 3(38) investment fiduciary, you will likely have nothing to do here since the provider has discretionary investment responsibilities and will make all decisions with respect to fund selection and monitoring. If your new provider is NOT a 3(38) investment fiduciary, then you will have the responsibility for selecting funds for your plan. The plan provider will likely have a menu of options for you to choose from. However, this is an important fiduciary responsibility, and if you (or others at your organization) do not feel qualified to make these decisions, then you should consider hiring an investment expert. Review and approval of revised plan documents Communicate change to employees (including required legal notices), with information on how to set up/access their account with the new provider Blackout period The blackout period usually takes about 10 days, giving the prior provider time to ensure all of the records are correct before funds are transferred. During this time, employees cannot make contributions, change investments, make transfers, or take loans or distributions. Plan assets will remain invested during the blackout period. Transfer of assets and allocation of plan assets to participant accounts at new provider FAQs for Changing Providers What are the most common reasons that companies change 401(k) providers? Common reasons to consider changing 401(k) providers include: High fees Low levels of customer support (for you as plan sponsor and/or your employees), including support with compliance and/or audits Lack of employee guidance, advice, and education that lead to low levels of engagement and/or employee complaints Poor investment performance Lack of features Although one factor may have been the catalyst for your organization to consider changing providers, do not let that overshadow a thorough and fair assessment of other elements that should be taken into account. Remember, choosing a 401(k) provider is a fiduciary act and should be clearly documented and carefully evaluated. What happens during a 401(k) blackout period? The blackout period usually takes about 10 days, giving the prior provider time to ensure all of the records are correct before funds are transferred. During this time, employees cannot make contributions, change investments, make transfers, or take loans or distributions. Plan assets will remain invested during the blackout period. What happens to an employee 401(k) loan if my company changes providers? The outstanding loan will be transferred from the old provider to the new provider. Remember, the plan remains intact, and the loan is from the plan, not the provider. Repayments are made to the employee’s account.

How Does a Multiple Employer Plan Compare to a Single Employer 401(k) Plan? Are MEPs and PEPs the new solution for workplace retirement savings or should I pick my own 401(k) plan? Multiple employer plans (MEPs) have been around for many years, but the rules governing these types of retirement plans limit their availability to many employers. In an effort to help more small and mid-sized companies offer retirement savings plans to their employees, the SECURE Act ushered in new changes so that, beginning in 2021, any business can join a new type of MEP, called a Pooled Employer Plan (PEP). Because of this new development, MEPs and PEPs have become buzzwords in the industry and no doubt you’ll see advertisements touting the benefits of these one-size-fits-all type plans. But are they really the magic bullet policymakers are hoping will solve the “retirement savings crisis”? That remains to be determined, but for many employers, sponsoring their own 401(k) plan with the right plan provider is the best way to ensure their goals for a retirement savings plan are met. What is a MEP? A multiple employer plan or MEP is a retirement plan, often structured as a 401(k) plan, that is established and administered by an “MEP organizer.” The MEP organizer makes the plan available to many different employers. If the MEP meets certain requirements set forth in the tax laws and ERISA (Employee Retirement Income Security Act), it will be treated as a single plan managed by the organizer and not as a series of separate plans administered by each participating employer. The MEP organizer serves as plan fiduciary and typically assumes both administrative and investment management responsibilities for all employers participating in the MEP. An MEP is viewed by the Department of Labor (DOL) as a single plan eligible to file one Form 5500 only if the employers participating in the MEP are part of the same trade or association or are located in the same geographical area. There must be some commonality between the participating employers besides just participating in the MEP. A Professional Employer Organization (PEO) may also sponsor an MEP for its employer clients. What is a PEP? The rules limiting the benefits of an MEP to employers with commonality limited the usefulness of MEPs for many small businesses. To allow broader participation in MEPs, the SECURE Act added a new type of MEP, called a Pooled Employer Plan or PEP, effective for plan years beginning in 2021. A PEP is a 401(k) plan that will operate much like a MEP with a plan organizer and multiple participating employers, but there are a few important differences. Any employer can join a PEP; the businesses do not have to have any common link for the PEP to be considered a single plan. But the PEP must be sponsored by a “Pooled Plan Provider” (PPP) that has registered with the DOL and IRS. The Pooled Plan Provider must be designated in the PEP plan document as the named fiduciary and the ERISA 3(16) plan administrator. This service provider is also responsible for ensuring the PEP meets the requirements of ERISA and the tax code, including ensuring participant disclosures are provided and nondiscrimination testing is performed. The PPP must also obtain a fidelity bond and ensure that any other entities acting as fiduciary to the PEP are bonded. What are the benefits of participating in a MEP or PEP? Studies have shown small businesses may refrain from adopting a retirement plan for their employees because of the administrative burdens, fiduciary liability, and cost associated with workplace plans. MEPs have been identified in recent years as a way to address these concerns for employers and potentially increase access to workplace retirement plans for employees of small and mid-size businesses. The MEP structure can alleviate much of the administrative and fiduciary burdens for participating employers, and potentially reduce costs. Reduced fiduciary responsibility – The MEP organizer or the PPP takes on fiduciary responsibility for managing the plan and for selecting and monitoring service providers. This generally includes selecting investments that will be offered in the plan. Reduced administrative responsibility – The MEP organizer or the PPP is responsible for day-to-day administration and complying with all applicable rules and regulations for plan operations. Investment pricing – A MEP/PEP arrangement pools plan assets of all participating employers, which may allow the MEP/PEP to obtain better pricing on investments. Reduced plan expenses – MEPs/PEPs allow small businesses to benefit from economies of scale by sharing the expenses for plan documents, general plan administration, and one Form 5500. Because of these benefits, interest in MEPs has grown over the years, leading to the rule changes that open the MEP opportunity to all employers through a PEP. How do MEPs & PEPs Differ from a Single 401(k) Plan? Many of the responsibilities associated with managing a retirement plan that can challenge plan sponsors are taken on by the MEP organizer or the PPP. This third party is responsible for making almost all the decisions related to managing the plan, hiring and monitoring service providers, and overseeing the plan’s investments and operations. The MEP/PEP entity must perform these services on behalf of all participating employers and will be held to the high fiduciary standards of ERISA for these duties. Once the employer has prudently selected the MEP/PEP entity, the employer is relieved of the day-to-day operational oversight and investment management. However, this transfer of responsibilities also means a transfer of control over key decisions regarding the plan. Conversely, when an employer establishes its own 401(k) plan for its employees, the employer retains many of these operational and investment responsibilities, which the employer typically fulfills with the support of service providers. The employer can design the plan based solely on their goals and objectives for the plan and their employees’ needs. The flexibility retained by an employer adopting a single 401(k) plan includes: Selecting the plan design features that fit their employees’ needs Picking the service provider that will assist them in operating the plan and provide relevant education and guidance to their employees Choosing the menu of investments that will be offered to participants in the plan or engaging an investment advisor to manage or guide investment selection Deciding whether to offer personalized advice to employees When Might a Single 401(k) Plan Might Be Better? While the shared expenses and reduced responsibilities of participating in a MEP/PEP can be attractive to small and midsize employers, sometimes what one employer sees as a benefit, another employer sees as a disadvantage. For example, because the MEP/PEP entity is operating one plan for many employers, the plan may be designed with the features that will be most widely accepted by most employers. There is typically little customization available in order to keep plan operations efficient (and cost effective) for the MEP/PEP entity. Participating employers generally have no control over service providers, plan design, or the participant experience. Additionally, although the structure of a MEP/PEP is meant to reduce administrative and investment expenses for participating employers, it remains to be seen if the cost of these plans will be competitive with the low-cost 401(k) plans available today without compromising on the quality and breadth of services. PEPs will open up the multiple employer plan market to all employers for the first time ever. And there are many financial organizations and service providers preparing to capitalize on this new solution by launching PEP products right away in 2021. But truth be told, the industry is still awaiting guidance from the IRS and DOL on a number of critical elements necessary for building the PEP plan product, including plan documents, acceptable compensation arrangements for service and investment providers, administrative responsibilities for PPPs, and special Form 5500 rules. With so many unknowns yet in the PEP market, it’s difficult to predict whether this new type of multiple employer plan will hit the mark for small business owners. Employers can benefit from the simplicity of a single service provider solution and receive professional fiduciary and administrative support right now with a 401(k) solution designed specifically for small and midsized plans. Ready for the right 401(k) solution? Betterment for Business offers a digital platform that makes it easy for you to set up and maintain a plan, with low cost administration, guided onboarding, and expert investment and administrative support. Let us help you deliver a 401(k) plan that works for your organization and your employees.

Pros and Cons of Illinois Secure Choice for Small Businesses Answers to frequently asked questions about the Illinois Secure Choice retirement program for small businesses. Since it was launched in 2018, the Illinois Secure Choice retirement program has helped thousands of people in Illinois save for their future. If you’re an employer in Illinois, state laws require you to offer Illinois Secure Choice if you: Have 25 or more employees during all four quarters of the previous calendar year Have been in operation for at least two years Do not offer an employer-sponsored retirement plan If your company has recently become eligible for Illinois Secure Choice or you’re wondering whether it’s the best choice for your employees, read on for answers to frequently asked questions. 1. Do I have to offer my employees Illinois Secure Choice? No. Illinois laws require businesses with 25 or more employees to offer retirement benefits, but you don’t have to elect Illinois Secure Choice. If you provide a 401(k) plan (or another type of employer-sponsored retirement program), you may request an exemption. 2. What is Illinois Secure Choice? Illinois Secure Choice is a Payroll Deduction IRA program—also known as an “Auto IRA” plan. Under an Auto IRA plan, you must automatically enroll your employees in the program. Specifically, the Illinois plan requires employers to automatically enroll employees at a 5% deferral rate, and contributions are invested in a Roth IRA. As an eligible employer, you must set up the payroll deduction process and remit participating employee contributions to the Secure Choice plan provider. Employees retain control over their Roth IRA and can customize their account by selecting their own contribution rate and investments—or by opting out altogether. 3. Why should I consider Illinois Secure Choice? Illinois Secure Choice is a simple, straightforward way to help your employees save for retirement. It’s administered by a private-sector financial services firm and sponsored by the State of Illinois. As an employer, your role is limited and there are no fees to offer Illinois Secure Choice. 4. Are there any downsides to Illinois Secure Choice? Yes, there are factors that may make Illinois Secure Choice less appealing than other retirement plans like 401(k) plans. Here are some important considerations: Illinois Secure Choice is a Roth IRA, which means it has income limits—If your employees earn above a certain threshold, they will not be able to participate in Illinois Secure Choice. For example, single filers with modified adjusted gross incomes of more than $140,000 in 2021 would not be eligible to contribute. However, 401(k) plans aren’t subject to the same income restrictions. Illinois Secure Choice is not subject to worker protections under ERISA—Other tax-qualified retirement savings plans—such as 401(k) plans—are subject to ERISA, a federal law that requires fiduciary oversight of retirement plans. Employees don’t receive a tax benefit for their savings in the year they make contributions—Unlike a 401(k) plan—which allows both before-tax and after-tax contributions—Illinois Secure Choice only allows after-tax (Roth) contributions. Investment earnings within a Roth IRA are tax-deferred until withdrawn and may eventually be tax-free. Contribution limits are far lower—Employees may save up to $6,000 in an IRA in 2021 ($7,000 if they’re age 50 or older), while in a 401(k) plan employees may save up to $19,500 in 2021 ($26,000 if they’re age 50 or older). So even if employees max out their contribution to Illinois Secure Choice, they may still fall short of the amount of money they’ll likely need to achieve a financially secure retirement. No employer matching and/or profit sharing contributions—Employer contributions are a major incentive for employees to save for their future. 401(k) plans allow you the flexibility of offering employer contributions; however, Illinois Secure Choice does not. Limited investment options—Illinois Secure Choice offers a relatively limited selection of investments, which may not be appropriate for all investors. Typical 401(k) plans offer a much broader range of investment options and often additional resources such as managed accounts and personalized advice. Potentially higher fees for employees—There is no cost to employers to offer Illinois Secure Choice; however, employees do pay approximately $0.75 per year for every $100 in their account, depending upon their investments. While different 401(k) plans charge different fees, some plans have far lower employee fees. Fees are a big consideration because they can seriously erode employee savings over time.  5. Why should I consider a 401(k) plan instead of Illinois Secure Choice? For many employers —even very small businesses—a 401(k) plan may be a more attractive option for a variety of reasons. As an employer, you have greater flexibility and control over your plan service provider, investments, and features so you can tailor the plan that best meets your company’s needs and objectives. Plus, you’ll benefit from: Tax credits—Thanks to the SECURE Act, you can now receive up to $15,000 in tax credits to help defray the start-up costs of your 401(k) plan. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits. It’s important to note that the proposed SECURE Act 2.0 may offer even more tax credits. Tax deductions—If you pay for plan expenses like administrative fees, you may be able to claim them as a business tax deduction. With a 401(k) plan, your employees may also likely have greater: Choice—You can give employees, regardless of income, the choice of reducing their taxable income now by making pre-tax contributions or making after-tax contributions (or both!) Not only that, but employees can contribute to a 401(k) plan and an IRA if they wish—giving them even more opportunity to save for the future they envision.  Saving power—Thanks to the higher contribution limits of a 401(k) plan, employees can save thousands of dollars more—potentially setting them up for a more secure future. Plus, if the 401(k) plan fees are lower than what an individual might have to pay with Illinois Secure Choice, that means more employee savings are available for account growth. Investment freedom—Employees may be able to access more investment options and the guidance they need to invest with confidence. Case in point: Betterment offers 500+ low-cost, globally diversified portfolios (including those focused on making a positive impact on the climate and society). Support—401(k) providers often provide a greater degree of support, such as educational resources on a wide range of topics. For example, Betterment offers personalized, “always-on” advice to help your employees reach their retirement goals and pursue overall financial wellness. Plus, we provide an integrated view of your employees’ outside assets so they can see their full financial picture—and track their progress toward all their savings goals. 6. What action should I take now? If you decide that Illinois Secure Choice is most appropriate for your company, visit the website to register. If you decide to explore your retirement plan alternatives, talk to Betterment. We can help you get your plan up and running fast—and make ongoing plan administration a breeze. Plus, our fees are well below industry average. That can mean more value for your company—and more savings for your employees. Get started now. Betterment is not a tax advisor, and the information contained in this article is for informational purposes only.