Author Topic: Can I be the 401k Plan Admin for my company?  (Read 6502 times)

daveydinner

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Can I be the 401k Plan Admin for my company?
« on: June 05, 2014, 01:53:28 PM »
Hello,

This is my first post, I hope it's worth everyone's time since someone else might have the same experience.

My employer is awesome. They contribute $1000 into my HSA every year and match 4% to my 5% 401k Contributions.

They got on a Merrill Lynch 401k plan administrator through Paychex (our payroll company) and all the funds, for lack of a better word, suuuuck. We're talking 2.5% expense ratios. I know for a fact our local rep Bernie takes some on top of that but the management fees are hidden so far back I cant even be sure how much. I try to get through, but Bernie is either stupid or very savvy at avoiding such disclosures and hiding behind a wall of jargon.

So I told my boss we should switch to Vanguard funds. He said, sure, I trust you, set it up. He doesn't like that Bernie shows up to our humble office place with his rolex and benz.

Now here's the question: Can I be the plan administrator? Like do what Bernie did for Merrill Lynch?
 
When it comes to explaining the benefits and choosing between the funds to my employees, I'm on top of it. In fact would love to spread some Moustachian wisdom to my cohorts.

Anyone ever done that or have advice? We get to make a clean start, I want to set it up right.

Thanks in advance,

Dave

nawhite

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Re: Can I be the 401k Plan Admin for my company?
« Reply #1 on: June 05, 2014, 02:20:08 PM »
I don't know that you can be the local Bernie and take a cut, but you can call Vanguard yourself and get it set up for your employer:

https://institutional.vanguard.com/VGApp/iip/site/institutional/clientsolutions/sdc

Be aware though, that most of the other employees will be kinda pissed off that you are changing anything (even if you're making it better). Every person will either have to manage 2 401k accounts or will have to initiate a rollover so you're making work for people. It's definitely worth it to get off a terrible plan, just don't expect people to think you are their savior.

daveydinner

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Re: Can I be the 401k Plan Admin for my company?
« Reply #2 on: June 05, 2014, 02:44:03 PM »
Thanks! Maybe I didn't phrase that right. I wasn't looking to skim off the top! Just to transition from a bad provider to a good one.

I realize there will be griping about change (I'm the GM, used to it), but I can sell it to the staff. Thanks for the advice.

Dave

plantingourpennies

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Re: Can I be the 401k Plan Admin for my company?
« Reply #3 on: June 05, 2014, 04:22:47 PM »
If you do, be aware that you are becoming a fiduciary to the employees of the company and to any employees that have retired and are still members of the plan.  With that comes certain responsibilities (and possible risk).  I would imagine that there are insurance policies to protect your personal assets in this sort of scenario (similar to policies that board members get), and I would advise getting something like that paid for by your employer before volunteering to take on risk like that.  Vanguard should be able to advise you more on that.

Badass by 41

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Re: Can I be the 401k Plan Admin for my company?
« Reply #4 on: June 05, 2014, 05:05:07 PM »
Note that most 401k funds have higher expense ratios because the company pays the custodian (Vanguard in this case) and typically passes those fees on to employees through the available fund E/Rs.

Also note that most custodians have asset limits which will limit your custodian options, and impact the fund E/Rs as well.

I'm not sure what you're asset pool is, but here's Vanguards small business site which has a $20 million minimum: https://institutional.vanguard.com/VGApp/iip/site/institutional/clientsolutions/sdc

okashira

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Re: Can I be the 401k Plan Admin for my company?
« Reply #5 on: June 05, 2014, 05:21:07 PM »
Note that most 401k funds have higher expense ratios because the company pays the custodian (Vanguard in this case) and typically passes those fees on to employees through the available fund E/Rs.

Also note that most custodians have asset limits which will limit your custodian options, and impact the fund E/Rs as well.

I'm not sure what you're asset pool is, but here's Vanguards small business site which has a $20 million minimum: https://institutional.vanguard.com/VGApp/iip/site/institutional/clientsolutions/sdc

It says "startup to 20M+"

I would assume they take much smaller plans .

daveydinner

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Re: Can I be the 401k Plan Admin for my company?
« Reply #6 on: June 05, 2014, 06:14:51 PM »
It's a small 12 person business with only $400k in the fund currently. I'll try and get through to the small business line at that link. cheers.

dragoncar

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Re: Can I be the 401k Plan Admin for my company?
« Reply #7 on: June 05, 2014, 07:46:02 PM »
It might be easier to use or fight for addition of a brokerage window option.  Then you can invest in etfs

TomTX

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Re: Can I be the 401k Plan Admin for my company?
« Reply #8 on: June 06, 2014, 03:24:45 AM »
It's a small 12 person business with only $400k in the fund currently. I'll try and get through to the small business line at that link. cheers.

I set up a SIMPLE IRA with Vanguard maybe 15 years ago for the small business I worked for. It was pretty easy, as was administration. No fees.

I understand the administrative headaches of 401(k) are higher.

Rocketman

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Re: Can I be the 401k Plan Admin for my company?
« Reply #9 on: June 06, 2014, 08:03:16 PM »
I was the plan administrator for our Family Business a few years ago (Started it - ran it and closed it down when the business closed)- a few notes for ya:

Make sure you know who will be filling out the IRS Form 5500 (hint you probably want someone else to do it - although if you really like IRS forms you can do it yourself).

Also, you need to find out what are any fees for terminating the relationship with your old plan administrators & fees with the investment house.  We lost about 2% (if I remember correctly) as we closed down.

Unless you have certain letter behind your name you CANNOT recommend to another employee where to put their money. Because if the market drops (and it will) they can sue you or if the investment you tell them to invest in doesn't do as good as another one in the plan - they can sue.

Also, take the time to add Roth 401k's to your plan as well.  If someone is only going to contribute 6% to the 401k - then it is better in the Roth 401k than the regular 401k i.e. tricked them into saving even more.

Good Luck!!!

Rocketman

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Re: Can I be the 401k Plan Admin for my company?
« Reply #10 on: June 06, 2014, 09:33:17 PM »
Also, take the time to add Roth 401k's to your plan as well. 

Agree. It's good to give options.

If someone is only going to contribute 6% to the 401k - then it is better in the Roth 401k than the regular 401k i.e. tricked them into saving even more.

Emphasis mine.

Disagree. This type of blanket statement can be dangerous. Roth's can be better than traditional, but it's not one size fits all. Many people, including myself, have crazy high tax rates and need to do everything possible to reduce them. I would be insane to put anything in a Roth before filling all my deductible options first.

If you do, be aware that you are becoming a fiduciary to the employees of the company and to any employees that have retired and are still members of the plan.  With that comes certain responsibilities (and possible risk).  I would imagine that there are insurance policies to protect your personal assets in this sort of scenario (similar to policies that board members get), and I would advise getting something like that paid for by your employer before volunteering to take on risk like that.  Vanguard should be able to advise you more on that.

All very true, so be careful and know the risks you could be taking on. We work with a financial advisory firm that takes full fiduciary responsibility. This removes all the risk we previously held as the administrators of the plan. You can get this for a much lower expense ratio than 2.5% plus hidden fees, so there is a middle ground here as well.

nawhite

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Re: Can I be the 401k Plan Admin for my company?
« Reply #11 on: June 09, 2014, 09:17:51 AM »
If someone is only going to contribute 6% to the 401k - then it is better in the Roth 401k than the regular 401k i.e. tricked them into saving even more.

Emphasis mine.

Disagree. This type of blanket statement can be dangerous. Roth's can be better than traditional, but it's not one size fits all. Many people, including myself, have crazy high tax rates and need to do everything possible to reduce them. I would be insane to put anything in a Roth before filling all my deductible options first.

I agree entirely that blanket statements can be dangerous, but Rocketman is right for the example that was given. This is a very weird way to think about this from a mustacian perspective but let me try to explain.

I have a friend who will put $500/month into an account (whichever account I tell him to put it into). His 2 options are:

1) have $500 deducted from his paycheck for the traditional account, so technically only $500 is coming out of his gross pay and he'll have to pay taxes later.
2) put $500 into a Roth Account. Technically if he were in the 25% tax bracket, this would be ~$625 coming out of his gross pay but he won't recognize that and thus will work out better in the end.

Most mustacians take gross vs. net into account when making our contribution. Some people don't think that way, they just think $500/month. If you are working with a person like this, then getting them to use a Roth account will ALMOST always make for better long term results for them simply because they are technically contributing more each month.

Cheddar Stacker

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Re: Can I be the 401k Plan Admin for my company?
« Reply #12 on: June 09, 2014, 10:54:35 AM »
Gotcha. Makes sense.

So tricking someone into doing a Roth and paying the tax is what I would call "Retirement investing for Dummies" or the Dave Ramsey type methodology - don't think or optimize, just do what I say.

Explaining to someone the methods written by the madfientist is more sophisticated or the MMM approach - optimize everything. But this method is too complicated for many, so let's just trick them into saving $625.

WhoopWhoop

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Re: Can I be the 401k Plan Admin for my company?
« Reply #13 on: June 09, 2014, 09:32:26 PM »
It's a small 12 person business with only $400k in the fund currently. I'll try and get through to the small business line at that link. cheers.

I started doing this for my boss for a 3-person company when I found out that her plan had huge-ass expense ratios PLUS 2.5-5% front end sales loads!!! What?!!

Here's what I found out: Vanguard doesn't actually want super-small businesses in their 401ks. The administrative fees were WAY too much for us. I'd start looking at Online 401k or Employee Fiduciary (but feel free to get quotes from all the regular financial companies).

Here's a list of questions I learned to ask each company's sales rep:
ADMIN FEES
What are the annual administrative costs?
What are the additional administrative fees (such as participant fees)?
What percentage does your company take off the top of our total 401k assets (meaning, the $400k)?
What's the set up fee?
What's the transfer fee (for transferring from our current plan)?
Are there any other one time (or possible one time per year) costs, such as filling out Form 5500?
Are participants charged any extra expenses or percentages on top of the company's fees?
The question you ask every financial services person or company: Where do you make money? What part of this offers you a profit?

INVESTMENT OPTIONS
How many options are there for participants to choose from? Ask for a list/description. Ask self: Are the options varied enough?
What's the average expense ratio?
Does the the provider of the 401k add on additional percentage fees on top of the fund's expense ratio?
Are there front end sales loads?
Is there a money market fund that is FDIC or SIPC insured? I'm pretty sure the answer to this question is always no.
Ask self: Are the investment options easy to look up on websites like Yahoo Finance or Marketwatch?
Ask self: Are the investment options displayed easily so an idiot can look at the options and choose?

OTHER
Can we decide how long an employee has to work at the company before they have the option of joining the 401k plan? Usually, our employees have to work for us for a year.
In my company's case, I had to ask: Do you offer a safe harbor 401k plan?
Do participants have the option to choose a Roth 401k? Does adding a Roth 401K option require more administrative or upkeep work on your part?
Can we decide to have employees vested 100% immediately?
Are part-time workers included on the plan?
Are there any other potential costs I need to know about?


NOTE TO OP: I worked for a financial planner for 7 months and gained a fair amount of knowledge about how to judge if a 401k's mutual fund offerings are good or varied enough, plus how to look up any fund on Yahoo Finance, so feel free to PM me if you want additional tips.

 

Wow, a phone plan for fifteen bucks!