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How to Pick a 401K Plan: From the Employers Perspective
Business owners or human resource managers charged with choosing a company-wide 401K plan often do not know where to start. What exactly constitutes the "best" 401K plan, anyway?
Here are three criteria that can help make 401K evaluation easier:
1. Costs and Fees
The first question to ask when looking to choose the best 401K company is what the costs and fees associated with the plan are. This may seem counterintuitive according to the law of "you get what you pay for," but in the world of 401K plans, costs and fees are of paramount importance.
Most 401K plans offer more or less the same investment options, and most 401K plans offer a good level of service. The most notable difference, then, is often in the cost.
If one 401K company charges a 5 percent "load" fee and another 401K company that is otherwise identical charges a 2 percent fee to manage the money, it is imperative to choose the lower cost option. Over ten years, that 3 percent fee difference adds up to thousands of dollars of unnecessarily paid fees.
Also watch out for high maintenance fees, transaction fees, and other fees that can eat into the retirement savings of workers--and eat up the patience of business owners who must hear the ensuing complaints.
2. Customer Service
Once a 401K company has been vetted by the reasonable cost test, it is time to think about customer service. After all, any questions that the 401K company doesnt answer may be directed to the business owner or human resources manager who chose to work with that 401K company.
Customer service at the best 401K plans includes:
Obviously, there are more concerns, but those are the big three.
3. Further Education
What separates the best 401K companies from the rest may be on the education side of things. Employees want to know what is going on with their 401K plans, and employers want employees to be educated as well, but the whole subject of 401K plans can be such a headache to deal with that most companies operate with more than half of employees and management relatively clueless.
The best 401K companies do not allow cluenessness to reign. By working with employees over the phone, by maintaining an informative and comprehensible Web site, by proactively educating both employees and employers about the 401K plans in question, adequate education can be achieved.
Look for Systems
Low costs, superior customer service, and admirable further education does not come from good intentions. 401K companies must build systems, both in terms of personnel and technology, that allow them to supply this value to their members affordably and efficiently.
The difficulty of this task is the number one reason why it often happens that one 401K company may charge significantly a higher "load" fee than another comparable company: the higher-charging company is trying to cover the costs of giving good service, which can add up in a hurry.