Retirement benefits are the second most valued employee benefit a company offers, after health insurance. 88% of employees say a 401(k) is a must-have benefit when they’re looking for a job. Employees at large companies are taken care of, with 401(k) plans and executive compensation packages. But what about employees in small companies?
Many of the 50 million Americans who don’t have access to a company-sponsored retirement plan like a 401(k) work for small businesses (those with fewer than 100 employees), many for companies with fewer than 20 employees. Owners of these companies tend to shy away from offering a 401(k) plan because they think 401(k)s cost too much and are too complex to administer.
So, to be comfortable with offering a 401(k) plan, small business owners must look for providers who can help them with the many facets of a 401(k) plan and do it economically.
So how to find one, and what kind of tools does that provider need to make 401(k) administrative processes efficient enough to be cost-effective?
Legacy companies aren’t interested because the small plan market isn’t very profitable, but there are third-party administrators (TPAs) who are interested, and have found ways to provide quality services to small plan 401(k)s.
But TPAs are a dime a dozen. Lower fees and accessibility to technology are becoming the norm. What makes one TPA stand out from the rest of the crowd?
Fintech 401(k). Fintech empowers the TPA with the ability to do more for plan sponsors using two important keys: automation of everyday processes and superior bundled solutions.
Key #1: Automation
Automation is one of the keys to making a 401(k) plan stand out.
The retirement industry has been slow to warm to technology, but the more successful ones are doing so, if for no other reason that self-preservation: automate or die.
Automated processes vary widely, however – from basic functionality to comprehensive automation. Pairing retirement plan administration and technology seems to make sense, but when it comes down to actually automating administration, do better outcomes result?
Benefits for employers
Extensive automation allows employers to easily administer their plan with:
- Customizable plan design and easy set-up. A good fintech administrator can streamline the complexities of 401(k) design and investment line-up for plan sponsors so that set-up can be done in a very short time.
- Portfolio offerings. Robo-advisors help participants design a customized investment portfolio from the funds in the plan, based on the participant’s needs and investing goals.
- Streamlined back office. Full payroll integration is vital, as is the elimination of manual administrative tasks such as participant contributions and participant data changes.
- Compliance. It’s easy to make administrative mistakes following the complex IRS, DOL, and ERISA rules. Noncompliance issues can be avoided, especially in the realm of nondiscrimination testing, by automating the testing process to ensure the administrator is notified before a problem arises.
- Lower fees. The combination of technology and automation creates efficiencies, which in turn results in lower fees. Automation allows the TPA to lower their fees for setup, compliance, and reporting.
Benefits for employees
Efficient automation processes can Improve employee participation in their plan:
- Auto-enrollment. Automatically enrolls new employees at a fixed percent of pay; employees can opt-out, but few do. Auto-enrollment increases participation and savings, especially among “get around to it later” employees and can help with compliance testing.
- Auto-increases. Automatically increases participant deferral percentage after a fixed period of time. Helps employees increase their retirement savings faster.
- Auto-default investment. Defaults employees who don’t actively choose where to invest their savings into a Target Date fund. Target date funds tend to have a potential for better returns than money market funds and help employees become accustomed to investing.
- Chatbots. Chatbots can help educate participants and get them actively engaged with their retirement plan. They’re also readily available when participants need help with their accounts.
- Participant dashboard. A dashboard enables participants to log into their account to track their contributions and investments, and make changes to their deferral limits, get educational materials, and update their personal data.
Fintech 401(k) administration automation is used to create efficient processes that provide better outcomes for both employer and employee. Employers have fewer headaches and costly errors, and employees have an easier way to accumulate retirement savings.
Key #2: Bundled Solutions
Using a bundled service for administration is the second key to making a 401(k) plan stand out.
When a company decides to adopt a 401(k) plan, one of the earliest decision it has to make is about service providers, and whether to use bundled or unbundled services for its plan.
Bundled vs. unbundled – it’s a debate that’s raged for a long time. In general, bundled providers offer lower fees with a limited range of services, while unbundled providers offer a lot of hand-holding and customizable services.
It boils down to who performs the administration services. A bundled plan uses a one-stop-shop approach, while an unbundled plan uses multiple service providers. In a bundled plan, the financial institution who is the recordkeeper also handles administration. In a plan with unbundled services, administrative services are handled by a TPA firm.
Companies with benefits staff and budgets can afford to use the unbundled approach, able to hire the various providers they need to administer their plan. Small and mid-sized companies, on the other hand, often don’t have the staff, expertise, or budget to do this, so tend to look at bundled providers as being the answer they need to have a 401(k) plan.
So how do small companies get their bundled 401(k) plans to stand out so they can attract and retain key employees?
Enter the fintech 401(k) administrator.
A fintech administrator can customize its bundled solutions and use them to make a micro 401(k) plan shine with its:
- Ability to simplify 401(k) plan complexity
- Total payroll integration
- Proactive compliance administration
- Dedication to participant outcomes
- Human-centric approach
Fintech bundled 401(k) solutions go above and beyond the norm to produce superior results for both plan sponsor and employees, an approach with a proven track record. They’re ideal for small businesses.
Looking for a superior fintech administrator to partner with so you can use these keys to help your clients’ 401(k) plans stand out?
401GO is just the fintech 401(k) company you’re looking for.
401GO built their tech-driven platform from the ground up to make 401(k) plans simple to set up and administer while being affordable. Their platform automates the administration duties generally done by humans and provides excellent bundled solutions.
They’re not trying to replace all humans, however, believing that relationships with advisors are something to value. They want to make it easy for you to say yes to small plans.
Interested? Partner with 401GO and discover how fintech solutions can help you succeed.