401k Comparisons

Thinking of Changing 401(k) Providers? Here’s What to Consider If you’re considering changing 401(k) providers, be sure to spend some time assessing your current situation and prioritizing your criteria. If you’re reading this, you may have reservations about your current 401(k) provider—and that’s okay. It’s not unusual for companies to change their 401(k) provider from time to time or feel out potential alternatives. We’d argue it’s even best practice to periodically take stock of your current situation. You want to feel confident your plan is keeping up with industry best practices and that you and your employees are getting good value for your money. So how do you go about it? In this guide, we’ll walk you through: Four criteria to consider before switching providers How to switch providers, step-by-step What to expect when switching your plan to Betterment at Work Four criteria to consider before switching 401(k) providers Let’s start with a friendly reminder: because choosing a 401(k) provider is a fiduciary act, you should carefully evaluate your options and clearly document the process. Even just a few criteria can go a long way in that pursuit. Taken altogether, they can give you a better sense of whether you should make a move or stay put. So if you haven’t read through your current agreement recently, now’s a good time to re-familiarize yourself and see how those terms stack up with the following criteria. It isn’t an exhaustive list by any means, but if you find they fall short in these criteria, it may be time to assess other options. Cost 401(k) plan fees can be complicated, but we’ll simplify things a little by sorting them into three categories: Plan administration fees Plan administration fees are (in most cases) paid by you, the plan sponsor, and cover things like plan setup, recordkeeping, auditing, compliance, support, legal, and trustee services.  Investment fees Investment fees are typically paid by plan participants and are often assessed as a percentage of assets under management. They come in two forms: - Fund fees, aka “expense ratios,” charged by the individual funds or investments themselves. - Advisory fees charged by the provider for portfolio construction and the ongoing management of plan assets. Individual service fees If participants elect certain services, such as taking out a 401(k) loan, they may be assessed individual fees for each service. Plan providers are required to disclose costs such as these—as well as one-off fees relating to events such as amendments and terminations—in fee disclosure documents.  All in all, fees can vary greatly from company to company, especially depending on the amount of assets in their plans. Larger plans, thanks to their purchasing power and economies of scale, tend to pay less. While comparisons can be hard to come by, one source is the 401k Averages Book. You’ll just need to pay—ahem—a fee to access their data. Support Support can encompass any number of areas, but it really boils down to this: do you and your employees feel forgotten and left to fend for yourselves, or do you feel the comforting and consistent presence of a trusted partner? The quality of service received by both groups—both you the plan sponsor and the plan participants—matters equally, so be sure to ask your employees about their experience. How easy is the provider’s user interface for them to navigate? Was it simple to set up their account and get started toward their goals? What kind of education are they being served along the way? One indicator of good participant support is when a majority of them are making contributions at healthy rates. From the plan sponsor’s perspective, many of the same questions regarding setup and day-to-day operations apply. Crucially, however, your support should extend to matters of compliance and auditing: Are the 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? There’s also the question of payroll integration. Does your current 401(k) provider support it? How smoothly have things been running? Betterment at Work supports both 360o integration, where your payroll system and 401(k) system can send information back and forth, and 180o integration, where the data flows only one way, from your payroll system to the 401(k) system. If payroll integration is something you’re looking for in a new provider, be sure you understand these different levels of integration and which responsibilities you may retain. Investment Options For starters, it’s worth thinking about the investment philosophy of your current provider and whether that approach aligns with the needs of your employee demographic. What sort of investment options and guidance do they provide your employees? Some providers could offer a handful of target date funds and mutual funds then call it a day. This could be less than ideal for several reasons. For one, target date funds are essentially a rigid, one-size-fits-all solution to the problem of 401(k) investors not adjusting their risk exposure as they near retirement. If, however, an employee wants to customize their allocation according to their risk appetite, or if they plan to work past their retirement date, the target date fund may no longer be suitable for them. They’re left to figure out for themselves how and where to invest. Contrast that with Betterment at Work, where our portfolios can be customized based on a participant’s planned retirement date or their appetite for risk in general. Mutual funds, meanwhile, tend to cost more, anywhere from 2.5x to 5x more on average, and perform worse over the long run. This is why Betterment builds and manages its portfolios with lower-cost exchange traded funds (ETFs). All things considered, our investment options are designed for the long-term to help your employees reach their retirement goals.  Wherever your plan’s investment options land, you still have an obligation as a fiduciary to operate the plan for the benefit of your employees. This means it’s not about what you or a handful of managers want from an investment perspective, but what serves the best interests of the majority of your employees.  Finally, one important consideration is whether the plan provider is an ERISA 3(38) investment fiduciary like Betterment. This alleviates the burden of you, the plan sponsor, having to select and monitor the plan investments yourself. Instead, the plan provider assumes the responsibility for investment decisions, saving you time and stress. We’ll touch on other forms of fiduciary responsibility in the section below. Plan design Changing providers doesn’t mean you’re terminating your 401(k) plan and starting from scratch. That has legal ramifications, including not being able to establish another 401(k) plan for at least a year. It does present an opportunity to consider changing the design of your plan, like adding a Safe Harbor match provision. There are also features like auto-enroll and auto-escalation, which Betterment at Work offers at no additional cost. Now’s also a good time to know what level of fiduciary responsibility your current provider assumes and whether you’d want a new provider to have that same level of responsibility, take on more, or whether you’re comfortable taking on more fiduciary responsibility yourself. In terms of investments, the provider may serve as the ERISA 3(21) fiduciary, which provides only investment recommendations, or the aforementioned ERISA 3(38) fiduciary (like Betterment at Work), which provides discretionary investment management. Or they may not be a fiduciary at all. In terms of administration, the provider may or may not provide ERISA 3(16) services (Betterment at Work does). 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 by default, fall to you as plan administrator. How to switch providers, step-by-step So you’ve done and documented your research and reached the conclusion that it’s time to make a change. What next? Better understanding the mechanics of a move can help you 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. Once you’ve identified your chosen successor provider and executed a services agreement with them, high-level steps include: Notify your current provider of your decision. You may hear them refer to this as a “deconversion” process. Establish a timeline for asset transfer and a go-live date with the new provider. Review your current plan document with the new provider. This will give you the chance to discuss any potential plan design changes. Be sure to raise any challenges you’ve faced with your current plan design as well as any organizational developments (planned expansion, layoffs, etc) that may impact your plan. Set up the investments. If your new provider is a 3(38) investment fiduciary, you’ll 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’ll 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 approve revised plan documents. Communicate the change to employees (including required legal notices), with information on how to set up and access their account with the new provider. Wait through the blackout period. The blackout period is a span of time—anywhere from 2 to 4 weeks depending on your old provider—when employees can’t make contributions, change investments, make transfers, or take loans or distributions. Participants’ accounts are typically still invested up until the old provider liquidates them and sends them to the new provider. From there, they’re re-invested by the new provider. Outstanding employee loans are also transferred from the old provider to the new provider. Confirm the transfer of assets and allocation of plan assets to participant accounts at your new provider. What to expect when switching your plan to Betterment at Work As you can see from the steps above, switching 401(k) plan providers isn’t as simple as flipping a switch. But that doesn’t mean some providers don’t make it easier than others. We pride ourselves on streamlining the process for new clients in a number of ways: As a 3(38) fiduciary, we handle all investment decisions for you. That’s one less thing to worry about when serving the interests of your employees. We also create accounts for eligible employees and participants, saving them the hassle. You can track the entire onboarding process, meanwhile, in your employer dashboard. Regardless of whether you end up making a switch, we hope the criteria above helped you take better stock of your current 401(k) offering. Before, during, or after that decision, we’re here to help.

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? 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. Although the DOL has provided some guidance, the industry is still awaiting additional guidance 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 at Work  offers an all-in-one dashboard for employers that aims to simplify plan administration at one of the lowest costs in the industry. Our guided onboarding, dedicated customer support team, and expert-built portfolios can help  you deliver a 401(k) plan that works both 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 5 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 5 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 $144,000 in 2022 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—IRA contribution limits are lower than 401(k) limits. The maximum may increase annually, based on cost-of-living adjustments (COLA), but not always. (The maximum contribution limits for IRAs stayed stagnant from 2019 through 2021 and increased slightly in 2022.) 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 lower employee fees. Fees are a big consideration because they can 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 over three years. Plus, if you add an eligible automatic enrollment feature, you could earn an additional $1,500 in tax credits over three years. 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 expert-built, 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—and aim to simplify ongoing plan administration. Plus, our fees one of the lowest in the industry. 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.