The vast majority of employers offer a traditional 401(k) or similar plan. Since retirement plans like 401(k)s are an important recruitment and retention tool, you may be considering offering one at your workplace, especially in today’s tight labor market. But, if you’re like many businesses, you’re probably wondering what expenses you may incur that will contribute to your business’s overall 401(k) cost. Let’s find out.
Since we know cost is often a top concern when weighing options that will boost your benefit offerings, in this article, we’ll help you understand what 401(k) fees you’ll be responsible for if you decide to offer a plan. After reading this article, you’ll know all the costs involved with providing this employee benefit to your workforce to decide if a 401(k) fits within your budget.
The cost of offering 401(k) depends on a number of factors and can range considerably. For example, while a company with 10 employees can expect to pay anywhere from $1,400 to $5,600 to get a plan up and running and cover its administration for the first year, a larger business may pay more or possibly even less depending on things like plan design, the number of employees, or their TPA service provider.
To help you understand the various expenses, the 401(k) fees that the employer pays generally fall into three categories:
When you decide to start a 401(k) plan at your company, you’ll likely have a one-time initial fee to set it up. This will cover activities like setting up the new plan and educating your employees about the plan.
For these services, you can expect to pay anywhere between $500 to $2,000. Keep in mind that there’s a tax credit for start-up costs for small businesses with less than 100 employees, which the SECURE Act increased to up to $5,000 annually for the first three years. You can claim the credit to cover the costs to set up and administer your plan as well as educate employees about it.
Because of the complexities involved in managing 401(k)s, if you’re like most companies, you’ll hire a third-party administrator (TPA) to maintain your plan. That means you’ll be responsible for covering their costs, which include everything needed for the day-to-day operation of the plan like:
The more complicated the plan design, the higher the 401(k) fees for administration may be, but you will generally see costs ranging from $750 a year to $3,000. In addition to this 401(k) cost, you’ll pay what’s known as a per-participant fee that will be somewhere in the range of $15 to $60 a year for each person enrolled.
A 401(k) match means that you’ll contribute an amount that matches what your employee puts into their plan up to a certain percentage or amount. As an employer, you don’t have to offer a 401(k) match. But there are some advantages.
First, it can make your plan more attractive to new and existing employees. Since most employers that provide a traditional 401(k) offer a match, this feature can help ensure workers see your benefit as competitive. Just be sure the match is also on par with what other companies are offering, which is typically between 4% and 6% of pay.
Also, a safe harbor match will eliminate the need for non-discrimination compliance testing. There are 4 different types of safe harbor 401K(k) plan designs:
In addition to these standard fees behind your 401(k) cost, there may be some surprise expenses that you’ll want to watch out for. These could include costs for services like:
When choosing a 401(k) provider, just be sure to carefully check your quote or fee schedule so you know what you’re being charged.
While all TPAs will charge you for the set up and administration of your plan, it’s worth shopping around because 401(k) fees can vary by provider. If you’re looking to bring down your 401(k) cost, another way you can save is through plan design. For example, you’ll be charged less in administration fees if you have a safe harbor plan since the TPA doesn’t have to worry about compliance testing because your plan will be exempt from the requirement.
Since a 401(k) is one of the top benefits employees want, it may be time to offer one at your workplace. However, when evaluating the 401(k) cost your business would incur, it’s understandable to be worried.
To help you compare 401(k) fees and find the right TPA that can help you successfully launch a plan for your business, you’ll want to review the best third-party administrators in the Northeast. If you think that Complete Payroll Solutions might be a good choice for your company, learn more about CPS’ 401(k) offerings.
This blog was originally published in May of 2022 and was updated in June of 2023 for accuracy and comprehensiveness.