Author Topic: Helping Employer Establish a 401K  (Read 7013 times)

Felipe

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Helping Employer Establish a 401K
« on: July 29, 2015, 11:23:31 AM »
Hi!

My employer wants to establish a 401k (small business with about 30 employees and nobody earning over 100k) and I'm wondering who everyone has for their 401k so I can find some good companies to go with.

I like Vanguard but I'm not sure if they have a traditional 401k (I heard their small business fee is 3500/yr+20/fund unless someone is on flagship). I also found Employee Fiduciary and Online 401k. I'm between traditional 401k and safe harbor 401k.

Does anyone have any wisdom on which companies to go with?

Thank you very much.
« Last Edit: July 29, 2015, 11:56:28 AM by Felipe »

cdttmm

  • Stubble
  • **
  • Posts: 249
Re: Helping Employer Establish a 401K
« Reply #1 on: July 30, 2015, 06:20:29 AM »
About 15 years ago, I was the person responsible for all things HR-related (in addition to a long list of other things) in a very small company. I was responsible for setting up a SIMPLE IRA for the company. I first worked with American Funds, but I found them very unhelpful and ultimately I told the company I wanted to use somebody else. I ended up choosing Northwestern Mutual. The rep was extremely thorough and came to office for numerous meetings. Of course, at the time, I was far more concerned with the details of administering the plan than the details of the how fast my money would grow inside the plan because it was a huge step for the company and I didn't want to screw anything up.

I also know a number of smaller businesses that use Fidelity for their plans, for what that's worth.

I would not recommend Prudential based on my experiences with them when I was with a different employer.

Hope that helps!

ioseftavi

  • Bristles
  • ***
  • Posts: 401
  • Location: NYC
Re: Helping Employer Establish a 401K
« Reply #2 on: July 30, 2015, 07:17:39 AM »
Strongly second CDTTMM's advice of looking into a SIMPLE-IRA.  The yearly contribution limits are lower ($12,500 vs $18,000) but it's about 20 times cheaper and easier to setup, maintain for employees.

Once your company's retirement assets added together (everyone in the company) are greater than a million or two, I would look into 401(k)s.  401(k)s are fantastic for saving for retirement, but at the small end of the scale (less than perhaps 50 employees or $1mm - $2mm in assets) the fees/admin/mgmt expenses are a serious hurdle. 

NorCal

  • Handlebar Stache
  • *****
  • Posts: 1464
Re: Helping Employer Establish a 401K
« Reply #3 on: July 30, 2015, 07:46:17 AM »
You won't get much traction with a major player like Vanguard, Fidelity, etc.  They usually won't talk to you unless you have $2M+ in plan assets already.

The companies that sell to small businesses like American Funds or Great West Financial will have high fees based on your small initial plan size.  However, you'll be able to reduce fees as the plan grows.  This is unfortunately the "game" of starting a 401k plan.

Two good places to start are your existing benefits broker, or your current payroll provider.  They will usually have existing relationships that can help implementation.

milesdividendmd

  • Handlebar Stache
  • *****
  • Posts: 1913
  • Location: Portlandia
    • Miles Dividend MD
Re: Helping Employer Establish a 401K
« Reply #4 on: July 31, 2015, 09:52:46 AM »
If possible advocate for vanguard, Schwab, fidelity, tdameritrade. With any of these you will have great low cost index fund options.

Also try to structure the plan to allow in service rollovers, after tax contributions and Roth contributions to allow for a mega backdoor option.

ClovisKid

  • 5 O'Clock Shadow
  • *
  • Posts: 38
Re: Helping Employer Establish a 401K
« Reply #5 on: August 09, 2015, 08:01:48 PM »
Also try to structure the plan to allow in service rollovers, after tax contributions and Roth contributions to allow for a mega backdoor option.

Definitely agree here!  These are critical items that don't (or shouldn't) add any cost to provide.  It's best to get the 401(k) set up with these features right out of the gate.  Typically, it's just checkboxes on the initial set-up form.  I set up our company's 401(k) originally, and I didn't set it up for after tax contributions.  It was really rather unnecessary at the time.  However, now that the IRS allows rollovers from after tax 401(k) accounts to a Roth IRA post-employment with that employer, I am kicking myself.  I am no longer in control of the process and I'm trying to convince the dimwits in human resources to change it, but they're afraid to do anything and they don't completely understand the advantages even though I've sent them loads of literature outlining the benefits of the change.  Thankfully, I DID set up our plan to accept in service rollovers and that allowed me set up a Roth conversion ladder. 

Set the plan up with the right features (that milesdividendmd lists above), and you'll be set.  That assumes that you go with a 401(k) rather than a SIMPLE IRA


BlueHouse

  • Magnum Stache
  • ******
  • Posts: 4136
  • Location: WDC
Re: Helping Employer Establish a 401K
« Reply #6 on: August 14, 2015, 01:55:06 PM »
I use Paychex for my payroll, and they offer two different plans that make everything turnkey.

the first plan is less expensive but only offers crappy fund selections.
The second plan is more, but offers about 150 different funds, including all the good vanguard and fidelity index funds. 

I moved to the second plan a few years ago and it costs me $240/year (for one person).  I can add more people any time I want and I don't think it costs much more. 

TomTX

  • Walrus Stache
  • *******
  • Posts: 5345
  • Location: Texas
Re: Helping Employer Establish a 401K
« Reply #7 on: August 14, 2015, 08:48:16 PM »
I set up a SIMPLE IRA for my employer (3 whole employees) with Vanguard about 18 years ago. No prior experience, it was easy and it cost a whole $20 per year per employee. Access to all the standard Vanguard funds.

nawhite

  • Handlebar Stache
  • *****
  • Posts: 1081
  • Location: Golden, CO
    • The Reckless Choice
Re: Helping Employer Establish a 401K
« Reply #8 on: August 18, 2015, 07:49:30 AM »
There is a new company that just launched for just this problem: https://captain401.com/

They allow setup online (no paper forms), they target small to medium sized businesses, they don't charge much comparatively and all of their funds are vanguard funds. Sounds like the perfect combination.

milesdividendmd

  • Handlebar Stache
  • *****
  • Posts: 1913
  • Location: Portlandia
    • Miles Dividend MD
Re: Helping Employer Establish a 401K
« Reply #9 on: August 18, 2015, 11:50:39 AM »

There is a new company that just launched for just this problem: https://captain401.com/

They allow setup online (no paper forms), they target small to medium sized businesses, they don't charge much comparatively and all of their funds are vanguard funds. Sounds like the perfect combination.

This seems expensive! $600/month plus 4$ per employee?

But then I only have experience setting up a solo 401K for a limited partnership(with a mega backdoor Roth option,) which is considerably cheaper.

kkbmustang

  • Handlebar Stache
  • *****
  • Posts: 1285
Re: Helping Employer Establish a 401K
« Reply #10 on: August 20, 2015, 05:15:49 PM »
Don't forget that there are other things one has to do as a plan sponsor of a 401(k) which contributes to the fees charged. Whatever TPA (third party administrator) you choose, make sure you understand exactly what you are getting for the administration fees. In particular ask about the following items:
1. Nondiscrimination Testing
2. Compliance testing and correction of any operational errors
3. Compliance Related Requirements (Form 5500s, SPDs, SARs, timely deposits, etc.)
4. Maintaining an updated plan document (i.e., in compliance with all written plan document requirements, determination letters, opinion letters)
5. If there are additional fees for processing in-service loans, rollovers, QDROs, etc.
6. Negotiate fiduciary liability provisions with the TPA
7. Disclosure of plan expenses information, investments information, etc. to participants

There are others, these are just off the top of my head.

Felipe

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Helping Employer Establish a 401K
« Reply #11 on: August 22, 2015, 12:29:00 AM »
Thank you for all the help.

I have chosen to set up a Safe Harbor 401k with Employee Fiduciary. The fees are $500 start-up, $1500 annual + .08%.

"Also try to structure the plan to allow in service rollovers, after tax contributions and Roth contributions to allow for a mega backdoor option."
Good idea, I hadn't thought of that, I'll look into it.

I'm going with Vanguard funds and I'm wondering if these funds are okay as investment choices or to narrow down-
ER- Fund Name- Tracks
.05% VFIAX S&P 500
.12% VSBSX Short-Term Government Bonds
.15% VEMAX Emerging Markets
.07% VBTLX Total Bond
.14% VXUS Total International Stock
.09% VSMAX Small Cap
.10% VAIPX Inflation Protected Security
.16% VMMXX Prime Money Market

milesdividendmd

  • Handlebar Stache
  • *****
  • Posts: 1913
  • Location: Portlandia
    • Miles Dividend MD
Re: Helping Employer Establish a 401K
« Reply #12 on: August 22, 2015, 12:37:45 AM »
That's a great selection of funds. 

Classes  that I would be interested in if I were your employee:

Small cap value
REIT
total market (vs s&p)
Foreign developed (instead of total international)

I'd axe the money market if you can.

ioseftavi

  • Bristles
  • ***
  • Posts: 401
  • Location: NYC
Re: Helping Employer Establish a 401K
« Reply #13 on: August 22, 2015, 10:37:06 AM »
That's a great selection of funds. 

Classes  that I would be interested in if I were your employee:

Small cap value
REIT
total market (vs s&p)
Foreign developed (instead of total international)

I'd axe the money market if you can.

Miles, I think that all workplace retirement plans must have some kind of stable value / money market fund option (under ERISA standards).  I may be wrong, but that's how I remember it.

milesdividendmd

  • Handlebar Stache
  • *****
  • Posts: 1913
  • Location: Portlandia
    • Miles Dividend MD
Re: Helping Employer Establish a 401K
« Reply #14 on: August 22, 2015, 10:41:55 AM »
I think you are right iose. You would think that short term treasuries would suffice, but I've never seen a plan without a money market.

Felipe

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Helping Employer Establish a 401K
« Reply #15 on: August 22, 2015, 11:53:17 AM »
I do need a stable value so I can't axe the Money Market.

Since I already have emerging markets, Developed Markets does have a 35% lower expense ratio than Total International and the 2 together cover the same index as total international with .09% Developed & .15% Emerging vs .14% Total International.

.09% VTMGX Develop Markets
.09% VSIAX Small Cap Value
.12% VGSLX REIT

I see that savings in expense ratio and the value the who fund would provide. Though there is an internal conflict about choosing a fund that holds so much Nestle stock.  How do you deal with internal conflicts investing in broad indexes holding large amounts of companies you don't support?

tomsang

  • Handlebar Stache
  • *****
  • Posts: 1085
Re: Helping Employer Establish a 401K
« Reply #16 on: August 22, 2015, 12:00:32 PM »
Don't forget to get the $500 tax credit for your employer.  If others are trying to convince their employer, this may be an added incentive.  We used Costco to get a plan and I think it cost a little over $1,000 of which we got $500 tax credit off of our taxes. 

http://www.irs.gov/pub/irs-pdf/f8881.pdf


milesdividendmd

  • Handlebar Stache
  • *****
  • Posts: 1913
  • Location: Portlandia
    • Miles Dividend MD
Re: Helping Employer Establish a 401K
« Reply #17 on: August 22, 2015, 12:16:41 PM »

I do need a stable value so I can't axe the Money Market.

Since I already have emerging markets, Developed Markets does have a 35% lower expense ratio than Total International and the 2 together cover the same index as total international with .09% Developed & .15% Emerging vs .14% Total International.

.09% VTMGX Develop Markets
.09% VSIAX Small Cap Value
.12% VGSLX REIT

I see that savings in expense ratio and the value the who fund would provide. Though there is an internal conflict about choosing a fund that holds so much Nestle stock.  How do you deal with internal conflicts investing in broad indexes holding large amounts of companies you don't support?

Investing is a messy business. But I can guarantee you that there are less savory companies than Nestle in the S&P.

Also if you split up your holdings between developed and emerging in proportion to their market cap nestle will be identically weighted in your holdings.

If ethics are your chief concern you can always choose funds that exclude companies that don't coincide with your values (ie no guns, no gas, etc.) but then you will have to pay for that active management. There are no free rides.

Felipe

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Helping Employer Establish a 401K
« Reply #18 on: August 24, 2015, 02:38:51 PM »
Investing is a messy business. But I can guarantee you that there are less savory companies than Nestle in the S&P.

Also if you split up your holdings between developed and emerging in proportion to their market cap nestle will be identically weighted in your holdings.

If ethics are your chief concern you can always choose funds that exclude companies that don't coincide with your values (ie no guns, no gas, etc.) but then you will have to pay for that active management. There are no free rides.

Thank you for that, I guess have to pick my focus here as investing as I don't want the excess fees and want to give the company  financially effective investments.

I'm allowed up to 40. I don't think I'll need that many but here's my current list. I'm wondering if I should include more bond options or anything I may want to include for those who aren't so into investing like target retirement funds. I'm pretty sure most of the employees will have no idea of the difference between all the funds.

I'm thinking of VFIRX short-term treasury funds, target retirement funds, or low cost renewable/green etfs.

Here's my current list:
.05% VTSMX Total Stock
.05% VFIAX S&P 500
.12% VSBSX Short-Term Government Bonds
.15% VEMAX Emerging Markets
.07% VBTLX Total Bond
.10% VAIPX Inflation Protected Securities
.16% VMMXX Prime Money Market
.09% VTMGX Developed Markets
.09% VSIAX Small Cap Value
.12% VGSLX REIT

Funds Considering:
.47% ICLN Global Clean Energy Index (lowest ER could find, companies generate profit)
.10% VFIRX Short-Term Treasury Funds
.10% VTAPX Short-Term Inflation Protected Securities
.09% VMVAX Mid Cap Value
.18% Target Retirement Funds

It'll cost more to amend later so I'd rather get a solid list to start. I'm also considering total ST Bonds, IT Bonds, LT Bonds, or International Bonds as their conditions may change but the latter seem like a higher risk/lower yield investment at this time.
« Last Edit: August 24, 2015, 02:40:46 PM by Felipe »

milesdividendmd

  • Handlebar Stache
  • *****
  • Posts: 1913
  • Location: Portlandia
    • Miles Dividend MD
Re: Helping Employer Establish a 401K
« Reply #19 on: August 24, 2015, 03:18:54 PM »
More is more!  Use all 40.

Target funds are great for low info investors.

No reason for short term TIPS.

Yes on small,mid and large cap value.

Consider a momentum fund from AQR.

Consider an international value fund.


Dollar Slice

  • Walrus Stache
  • *******
  • Posts: 9613
  • Age: 46
  • Location: New York City
Re: Helping Employer Establish a 401K
« Reply #20 on: August 24, 2015, 05:21:28 PM »
Target funds are great for low info investors.
+1 to this. In my experience you get people who are scared of picking investments and if you leave them alone they'll put it all in a money market fund or something. But if you have something obvious and easy like target-date fund for their age bracket, they may feel comfortable doing that, especially if someone can gently suggest it to them. It's such an easy sell and it's so much better for them than the "I'll just pick the safest one" cop-out.

The_Spectre

  • 5 O'Clock Shadow
  • *
  • Posts: 1
Re: Helping Employer Establish a 401K
« Reply #21 on: August 25, 2015, 03:39:10 AM »
- You might take a look at http://www.bogleheads.org/wiki/Setting_up_a_401(k)_plan. It seems like a good reference, maybe there's something you've missed.

- For an ethical index investing option, you could consider Vanguard's SRI (Socially Responsible Investing) funds.

Felipe

  • 5 O'Clock Shadow
  • *
  • Posts: 26
Re: Helping Employer Establish a 401K
« Reply #22 on: August 27, 2015, 03:38:56 PM »
Thanks again for all the help.

I have a list of 40 funds now. I'd appreciate some guidance as to refine this. The list is pretty good on low expenses though I am seeing if we can use institutional or institutional plus funds which would have even low expense ratios.

   Ticker   Name   ER
1   VTSMX   Total Stock   0.05
2   VTIAX   Vanguard Total International Stock Index Fund Admiral Shares   0.14
3   VFIAX   S&P 500   0.05
4   VTMGX   Developed Markets   0.09
5   VEMAX   Emerging Markets   0.15
6   VTRIX   Vanguard International Value Fund   0.44
7   VVIAX    Vanguard (Large cap) Value Index Fund Admiral Shares   0.09
8   VIMAX   Vanguard Mid-Cap Index Fund Admiral Shares   0.09
9   VMVAX   Mid Cap Value   0.09
10   VSMAX   Vanguard Small-Cap Index Fund Admiral Shares   0.09
11   VSIAX   Vanguard Small-Cap Value Index Fund Admiral   0.09
12   VSGAX   Vanguard Small-Cap Growth Index Fund Admiral   0.09
13   VSS   Vanguard FTSE All-World ex-US Small-Cap ETF   0.19
14   VGSLX   REIT   0.12
15   ICLN   Global Clean Energy Index   0.47
16   VCSAX   Vanguard Consumer Staples Index Fund Admiral Shares   0.12
17   VMIAX   Vanguard Materials Index Fund Admiral Shares   0.12
18   VGPMX   Vanguard Precious Metals and Mining Fund   0.29
19   VMMXX   Prime Money Market   0.16
20   VAIPX   Inflation Protected Securities   0.1
21   VBTLX   Total Bond   0.07
22   VTABX   Vanguard Total International Bond Index Fund Admiral Shares   0.19
23   VWEAX   Vanguard High-Yield Corporate Fund Admiral Shares   0.13
24   BLV   Vanguard Long-Term Bond ETF   0.1
25   VBILX   Vanguard Intermediate-Term Bond Index Fund Admiral Shares   0.1
26   VBIRX   Vanguard Short-Term Bond Index Fund Admiral Shares   0.1
27   VFSUX   Vanguard Short-Term (Bonds) Investment-Grade Fund Admiral Shares   0.1
28   VSBSX   Short-Term Government Bonds   0.12
29   VFIRX   Short-Term Treasury Funds   0.1
30   VWENX   Vanguard Wellington Fund Admiral Shares   0.18
31   VBIAX   Vanguard Balanced Index Fund Admiral Shares   0.09
32   VTWNX   Vanguard Target Retirement 2020 Fund   0.16
33   VTTVX   Vanguard Target Retirement 2025 Fund   0.17
34   VTHRX   Vanguard Target Retirement 2030 Fund   0.17
35   VTTHX   Vanguard Target Retirement 2035 Fund   0.18
36   VFORX   Vanguard Target Retirement 2040 Fund   0.18
37   VTIVX   Vanguard Target Retirement 2045 Fund   0.18
38   VFIFX   Vanguard Target Retirement 2050 Fund   0.18
39   VFFVX   Vanguard Target Retirement 2055 Fund   0.18
40   VTTSX   Vanguard Target Retirement 2060 Fund    0.18

Attached is a spreadsheet of the above funds (exact same thing as above) in case it isn't legible.

milesdividendmd

  • Handlebar Stache
  • *****
  • Posts: 1913
  • Location: Portlandia
    • Miles Dividend MD
Re: Helping Employer Establish a 401K
« Reply #23 on: August 27, 2015, 03:52:28 PM »
I would happily invest in your 401K.

beltim

  • Magnum Stache
  • ******
  • Posts: 2957
Re: Helping Employer Establish a 401K
« Reply #24 on: August 27, 2015, 04:13:10 PM »
I see that savings in expense ratio and the value the who fund would provide. Though there is an internal conflict about choosing a fund that holds so much Nestle stock.  How do you deal with internal conflicts investing in broad indexes holding large amounts of companies you don't support?

This is fascinating to me - I've never seen anyone not want to invest because the fund invests in Nestle.  What's your problem with Nestle?

Your list overall looks pretty good but I'm wondering why you have an index, plus the growth and value components of that index separately - for example, 10, 11 and 12.  It seems like you should have either 10 or (11 AND 12).  And what's the difference between 28 and 29?

While I personally prefer more options, there's a lot of research to show that once you go beyond a certain level, having more options in a retirement leads to low participation and worse outcomes for participants: http://www.403bwise.com/pdf/vcrr_choice_study.pdf

 

Wow, a phone plan for fifteen bucks!