Payroll Companies and 401(k)s: What They Might Be Missing
Many payroll companies can miss crucial parts of your team’s 401(k) plans. Find out more about what 401(k)s are and how your dental, optometry, physical therapy, or veterinary practice employees may be getting short-changed by your payroll company.
Table of Contents
- What is a 401(k)?
- Are 401(k)s offered through payroll companies?
- What Could Payroll Companies Do to Affect 401(k)s?
- Have All The Facts
- Do Your Homework
- How HR for Health Can Help
What is a 401(k)?
A 401(k) is a retirement savings plan issued by the employer for their team. A percentage of each team member's paycheck is saved each payroll week and put towards their retirement savings plan. This plan ensures employees have financial security when they decide to stope working. The funds are directly placed into an investment account for your team members. Over time, these funds grow and earn interest. Assuming an employee works for several decades before retirement, the money has a chance to build interest. This financial security can sometimes be the only retirement investment many Americans have ready for their retirement.
In some cases, employers may also offer a contribution match. This means that as the employer, you can match your employee's savings deduction and help them save even more money. This is not mandatory and is at the discretion of the employer.Recommended Video
Are 401(k)s Offered Through Payroll Companies?
Many payroll companies do offer 401(k)s. Deductions to fund a retirement plan must be made during the payroll process, so it only makes sense that payroll companies have jumped in on offering 401(k) plans to their clients. However, they often offer a combination of services, and there is little room for employees to make individual decisions about how their money is invested. Payroll companies often create an investment plan that is beneficial to them, and all clients who participate are obligated to follow along.
This basically means that if your employees find a more lucrative investment fund, they may not have the right to make any changes. Their funds are essentially tied up in the fund the payroll company has selected, whether it is most beneficial to them or not. Especially if you are planning to offer a contribution match to your team, you'll want to ensure the investment plans are beneficial.
To ensure employees get the best possible offer and that you are always in compliance with retirement plan requirements as a practice owner, employers should ask specific questions about the 401(k) investment plans. Each payroll company may operate differently, so you can't assume all 401(k) plans are created equally. In fact, there may be different requirements and regulations by state. The best way to ensure your payroll company offers your team the most beneficial 401(k) plans is to ask direct questions and research other companies.
What Could Payroll Companies Do to Affect 401(k)s?
There are a few things payroll companies can do that can negatively impact your team’s 401(k)s. You need to ensure they are not putting your practice at risk. For example, payroll companies are not fiduciaries. This means if they make any mistakes, it's not their fault — they won't be held liable, but you could be. Payroll companies also tend to offer insurance packages that are less cost-effective than other 401(k) providers. In the end, a payroll company offering you a package deal may not offer you the best pricing there is.
Payroll companies are also known for not diversifying their investment funds much. This can result in much less interest earned for your team. For the same cost, your employees could save way more with a 401(k) provider that diversifies their investing properly. In addition, making a 401(k) profitable requires some financial guidance from time to time. This isn't normally a service payroll companies offer. As they offer a package deal that is cost-effective for them, not for your team, they offer minimal assistance and services.
By not maximizing investments, employees will not achieve their financial goals. Most Americans are looking for a financially secure future. It is great for employee retention if you can offer your team the most advantageous 401K programs available to them.
Have All The Facts
Before you decide to go with a payroll company's package deal for your team’s 401(k) plans, ask all the right questions first:
1. Who will be liable if funds are mismanaged by the 401(k) provider?
2. What happens if you or your employees find a more profitable plan elsewhere? Can they match it?
3. Are all clients offered the same packages?
4. Are there different insurance plans for veterinary, optometry, dental, and physical therapy practices?
Before you sign with a payroll company, you should evaluate how advantageous they are to your employee's future. Make sure to get all the facts and compare results with other 401(k) providers to ensure you get the most bang for your buck.
Do Your Homework
When it comes to choosing a 401(k) provider, do your homework and compare different plans and packages. The most cost-effective packages can save you and your team lots of money, and they can be much more profitable if they are done right.
How HR for Health Can Help
HR for Health offers both payroll services and retirement plan options that can be advantageous to your team. With HR at heart, HR for Health can ensure you and your team are properly protected and that your medical clinic is always in compliance. Plus, HR for Health also offers electronic services like cloud storage, so employees can accept and sign any legal documents they need electronically.
Contact HR for Health today to see what services we can offer to help your team achieve their financial goals while they work at your medical clinic.