Offering a 401(k) plan can be a powerful tool to attract and retain talent for small businesses while also providing valuable retirement benefits to employees.
Carbon Collective offers sustainable 401(k) plans to small businesses. As an emerging thought leader in this space, we thought it would be helpful to review the six largest and most commonly compared providers. This includes ADP, Paychex, American Funds, Charles Schwab, Employee Fiduciary, and T. Rowe Price. Each provider has its unique features, benefits, and drawbacks.
ADP and Paychex are well-known payroll and HR services companies offering 401(k) plans for small businesses.
American Funds is a leading investment management company that provides 401(k) plans with a range of investment options.
Charles Schwab is a financial services company that offers a range of retirement plans, including 401(k) plans with low fees and investment flexibility.
Employee Fiduciary is a plan provider specializing in 401(k) plans for small businesses and offering low fees. They also offer customizable investment options.
T. Rowe Price is another investment management company that provides 401(k) plans with a wide range of investment options and robust educational resources for plan participants.
Criteria for Evaluating Small Business 401(k) Providers
Owners should consider several key criteria to ensure that they choose the right plan.
Reputation
Business owners can research providers by looking at their reviews, ratings, and awards and asking for recommendations from peers. A reputable provider is transparent about their fees and investment options and provides helpful educational resources for the plan participant.
Cost and Fees
Reviewing costs and fees ensures that it aligns with their budget and financial goals. Providers may charge fees for plan setup, administration, investment management, and other services.
Owners should look for providers that offer transparent, competitive fees with no hidden costs and provide clear information about what is included in each fee. Consider the cost of the investment options, as higher fees can eat into investment returns over time. Compare costs of small business 401(k) plans with the 401(k) comparison tool.
Investment Options
Providers may offer various investment options, such as mutual funds, target-date funds, and individual stocks and bonds.
Owners should look for providers offering diverse investment options with low fees and strong historical performance.
Customer Service
Owners should look for excellent customer service providers with responsive and knowledgeable support teams available to help plan participants.
Providers should also offer robust educational resources, such as retirement planning calculators, investment tools, and webinars, to help employees make informed investment decisions.
Efficient Administration and Record-Keeping
Owners should look for providers that offer easy-to-use online platforms with streamlined processes for employee contributions, plan administration, and record-keeping.
Providers should also offer compliance support, including IRS reporting and audit assistance, to ensure the plan complies with all applicable regulations.
Top 6 Small Business 401(k) Providers
The following are the top 401(k) providers for small businesses:
ADP
ADP is among the leading payroll and 401(k) providers in the United States. The company has established a strong reputation in the HR, financial services, and administrative industries.
ADP provides many investment options for running a 401(k) plan.
Although ADP does not have a dedicated program tailored to small businesses, it offers all-in-one services to businesses of all sizes, integrating payroll, HR, employee benefits, and retirement services into a single package.
This makes it easy for small business owners and plan sponsors to set up their plans. The company also offers outstanding ongoing customer service and great resources on its website and mobile apps.
However, estimating the cost of doing business with ADP may be challenging, and some available funds have high fees. Therefore, ADP might be suitable for larger companies that need all the services they provide.
Paychex
Paychex is a full-service company that provides payroll, human resources, and benefits outsourcing to small- and medium-sized businesses. Paychex is an excellent resolution for small businesses that want to have a 401(k) plan.
It provides seamless integration with the small business retirement plan and payroll. This makes it convenient for small business owners to transact everything they need with the help of a personal Paychex representative.
Clients can customize their 401(k) plans with funds and investment providers that suit their company best. However, one of the drawbacks is that businesses must have payroll services through Paychex to have a 401(k) through them.
This may not be desirable for small businesses that already have a payroll system in place. Paychex is a reputable company that has been around for a while and offers great customer service for employers and employees.
American Funds
American Funds is the third-largest family of mutual funds globally. The company offers a 401(k) program called the Recordkeeper Direct Program for small businesses. The program is simple to operate and maintains low-cost recordkeeping and investments.
It best suits companies with total investment assets of about $3 million and 250 or fewer participants. American Funds provides a wide selection of investment choices from single-family and target-date funds.
The company offers outstanding plan administration and setup support and has business-building resources for its small business clients. However, the company lacks investment options other than mutual funds, which can be a downside for some businesses.
Additionally, it may be complicated to figure out the exact pricing structure. Lastly, American Funds is a large company, which can lead to a lack of a personal touch on customer service.
Charles Schwab
The company offers a comprehensive range of financial solutions to cater to diverse needs. Charles Schwab's Index Advantage plan is tailored specifically for small businesses, providing access to their extensive range of investment options at a lower cost.
The plan is fully managed and supports plan sponsors and participants. While the program's cost varies based on a business's needs and solutions, Charles Schwab offers clients a full suite of online services and personalized support.
However, the company does not readily provide cost information and does not offer actively managed mutual funds, and it has an automatic opt-in feature, which may not suit all participants
Employee Fiduciary
Employee Fiduciary is a retirement plan provider that focuses solely on small businesses, offering a wide range of mutual funds and ETFs, including index funds.
The company prides itself on catering solely to small businesses, which enables them to offer outstanding relationship management and lower costs than its competitors.
Employee Fiduciary is transparent about its fees, providing an easy-to-understand fee schedule online. It is best suited for businesses with 30 or fewer employees.
The company is not a full-service financial services firm, lacks a diverse list of investment options, and does not offer the best technology resources.
T. Rowe Price
T. Rowe Price is a large financial management and investment company founded in 1937, catering to small businesses with their specific 401(k) program.
The program is designed for businesses with 1,000 or fewer employees and offers hands-on solutions at a lower cost.
They provide access to T. Rowe Price's wide range of investment options and high level of service. The company offers 24/7 online access to plan sponsors and participants.
T. Rowe Price does not publicly disclose its costs or fee structure, stating only that plans vary by plan. Additionally, getting the plan started requires calling the company.
Overall, T. Rowe Price is a great low-cost option for small businesses, with a wide range of investment options and top-notch customer service.
Comparison Chart of the Top 6 Small Business 401(k) Providers
Here is a comparison between the top 6 small business 401(k) providers, as well as Carbon Collective Investing, regarding key features, investment options, suitable business size, pricing, and customer service.
How to Choose the Right 401(k) Plan for Your Small Business
Here are some practical tips and advice on how small business owners can evaluate different providers and choose the right plan for their business:
Assess Your Business Needs and Budget
Before choosing a 401(k) plan, assess your business needs and budget. This includes determining the number of employees you have, their salary levels, and their participation requirements.
You should also consider the costs of offering a plan, including administrative fees and investment expenses.
Understand the Different 401(k) Plan Types
There are various 401(k) plans, including traditional, safe harbor, and SIMPLE plans. Each plan type has its eligibility requirements, contribution limits, and administrative rules.
It is essential to understand the different plan types and choose the one that best suits your business needs and budget.
Determine Your Eligibility and Participation Requirements
Once you have identified the right 401(k) plan type, you must determine your eligibility and participation requirements.
This includes determining who is eligible to participate in the plan, how much they can contribute, and whether you need to make matching contributions.
Evaluate the Investment Options and Fees
When evaluating different providers, consider the investment options and fees associated with each plan. Look for plans offering diverse investment options that may include mutual funds, index funds, and target-date funds.
Compare the fees associated with each plan, including administrative fees, investment expenses, and transaction fees.
Seek Expert Advice
Finally, seeking expert advice from a financial advisor or 401(k) provider can help you navigate the complex process of choosing the right plan for your business.
They can provide guidance on plan design, investment options, and administrative requirements and help you choose a plan that meets your business needs and budget.
The Bottom Line
Choosing the right 401(k) plan provider for a small business can be complex, but it is essential to ensure owners and employees have a secure financial future.
Before selecting a provider, owners should assess their business needs and budget, understand the different plan types, and determine their eligibility and participation requirements.
They should evaluate the investment options and fees and seek expert advice to help them make an informed decision.
Several reputable 401(k) plan providers cater to small businesses. The popular options are ADP, Paychex, American Funds, Charles Schwab, Employee Fiduciary, and T. Rowe Price. And at Carbon Collective, we often hear from our clients that we provide better service, portfolio options that align with their company mission, and at a better cost than the other plan providers. Read through our 401(k) case studies and schedule time with our Head of 401(k) Operations.
Each provider has their strengths and weaknesses. It is essential to compare them based on a business's specific needs and budget to choose the one that best suits the business.
Guide to Evaluating the Top 6 Small Business 401(k) Providers FAQs
What should you look for in a small business 401(k) provider?
A top small business 401(k) provider should offer a range of investment options, provide outstanding customer service, have transparent fees, and be tailored to meet the specific needs of small businesses.
What types of fees can be expected from a small business 401(k) provider?
Small business 401(k) providers may charge various fees, including administrative fees, investment fees, and transaction fees. Additionally, some providers may charge setup fees or termination fees.
How important is customer service when choosing a small business 401(k) provider?
Customer service is an important factor to consider when choosing a small business 401(k) provider. The provider should be able to offer responsive and knowledgeable customer support to help answer any questions or concerns that arise. A good customer service experience can help ensure that the plan runs smoothly.
Who are the top small business 401(k) providers?
Several top small business 401(k) providers include ADP, Paychex, American Funds, Charles Schwab, Employee Fiduciary, and T. Rowe Price.
What factors should you consider when choosing the right 401(k) plan for a small business?
It is important to consider the business needs and budget, the different 401(k) plan types, the eligibility and participation requirements, and the investment options and fees. Small business owners should look for transparency, ease of use, and good customer service and support.
