How Employers Can Save Money With a 401(k) Plan
As a healthcare practice employer, you’re probably familiar with the benefits of a 401(k) plan for your employees.
Of course, it’s also important to consider the potential 401(k) benefits for employers and your overall employer costs.
Many employers are advantageously positioned for the following benefits of a 401(k):
• Tax savings for both plan startup costs as well as contributions
• Retirement funds and tax savings for leadership and key personnel
• A variety of investment options
In short, a 401(k) gives both employees and employers the opportunity to invest in retirement with substantial tax benefits. Though there are expenses involved, these are often offset by potential cost savings. Whether you’re analyzing your existing 401(k) plan or comparing potential new plans, it’s important to weigh all the benefits, so you make an informed decision.
401(k) Costs and Potential Savings
When was the last time you performed a thorough analysis of your 401(k) costs and related employer costs? Are you sure you’re taking advantage of potential tax savings and other benefits? Is your plan competitive?
This process is known as benchmarking. In simple terms, it’s a systematic review of your 401(k) plan to ensure you’re familiar with it, you understand the related expenses, and that you’re providing a 401(k) plan that meets the needs of your employees. This process is extensive and may take some time to complete, but the following is a brief overview of the 401(k) costs and the savings you can expect.
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401(k) Plan Employer Costs
There are many 401(k) costs that you have to consider. These include:
• Startup costs: Fees and expenses related to implementing a new 401(k) plan.
• Matching costs: Many employers opt to match a percentage or dollar amount of each employee’s contributions. This is optional, but it helps distinguish your dental, optometry, or other healthcare practice to potential employees.
• Admin fees: Fees related to everyday plan procedures, such as accounting, customer service, year-end compliance testing, tax records, etc.
• Service fees: Also known as transaction fees, these are usually a set rate and directly related to specific transactions, such as loan processing.
401(k) Plan Employer Savings
• Startup tax credit: Eligible employers can claim a tax credit of up to $5,000 for the first three years.
• Tax deduction for contributions: Employers may deduct matching contribution costs on federal taxes, subject to certain limitations.
• Employee-paid admin fees: Employers may pass certain administrative and service fees to employees.
So, what’s the total 401(k) cost for employers? It usually averages between two and two and a half percent of the plan’s assets. HR for Health aims for competitive pricing, and that’s approximately one percent of the plan’s assets. You can sign up today for access.
Are You Meeting Your Fiduciary Responsibilities?
There are legal requirements regarding fiduciary responsibility. According to the IRS, these include:
• Acting solely in the interest of the participants and their beneficiaries;
• Acting for the exclusive purpose of providing benefits to employees participating in the plan and their beneficiaries, and defraying reasonable expenses of the plan;
• Carrying out duties with the care, skill, prudence and diligence of a prudent person familiar with the matters;
• Following the plan documents; and
• Diversifying plan investments.
Employers have this fiduciary responsibility for their 401(k) plans. Because the employer assumes some liability, it’s important to thoroughly understand your rights and fiduciary responsibilities. For example, you should regularly benchmark your 401(k) plan to ensure the fees are reasonable. If you aren’t comfortable handling this task, the IRS recommends hiring an expert like HR for Health to ensure you meet fiduciary standards.
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Are You Paying Commission or Fee-for-Service?
If you decide to hire an expert advisor, you may find pricing variations as you compare your options. These advisors can impact many areas, including your overall performance, 401(k) costs, and employer costs. Typically, 401(k) experts fall into one of two groups:
Commission-based advisors aren’t fiduciaries. A fiduciary advisor is legally obligated to put the client’s needs first. By contrast, an advisor who works on commission may sell products based on the commission they’ll earn. The products aren’t necessarily in your best interest. Many experts recommend steering clear of commission-based advisors for this reason.
Other advisors charge a flat fee, and these experts are always considered fiduciaries. While the fee may be more expensive than hiring commission-based advisors, you can rest easy knowing the advisor is always working in your best interest. They are legally obligated to make advisory decisions based on the client’s needs—not their own.
HR for Health is a fiduciary, and we always put your needs first. We can evaluate your 401(k) costs and services, as well as review your current processes to ensure everything is reasonable and compliant. We’ll also offer savings strategies whenever possible. Many of our clients report better peace of mind once they use our services. Schedule a call to learn more.
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Do You Provide 401(k) Guidance and Education for Your Employees?
Once you have a plan, it’s important to provide ongoing education to plan participants. At a minimum, you should perform this task annually. It’s part of your fiduciary responsibilities,
and the task usually falls on you as the practice manager. However, a fiduciary like HR for Health can also assist with this task and ensure you remain in compliance. We provide 401(k) education to all plan participants, and you can easily store this securely in the cloud with HR for Health’s software.
Consider Your Current 401(k) Offerings
If you haven’t evaluated your 401(k) recently, now is the best time to do so. Look for cost inefficiencies and compliance issues. Also, make sure you have an Investment Policy Statement prepared. This document is helpful if you’re ever audited by the Department of Labor. The IPS is your compliance framework and explains how your plan operates to remain in compliance. Without an IPS, there’s no governance to your plan or how it’s managed.
How HR for Health Can Help
HR for Health is a licensed fiduciary with a 401(k) option that meets all compliance requirements, including those for specific states that require certain employers to provide a qualifying retirement plan for employees via the private market, or the state’s program (e.g., Oregon or California). We work with all practices, including established practices that have been in the healthcare industry for many years. Our pricing is competitive, and we always make recommendations based on your needs—not our own.
While a 401(k) offers many benefits for a company, it’s not always advantageous to offer one right away. We’ll review your current situation and advise whether a 401(k) makes the most sense for your company. We can also benchmark your existing 401(k) plan and ensure it’s compliant and has competitive costs. Even if you’re already getting the best price and services, you deserve to know that. Schedule a consultation with HR for Health now.