Setting up a 401k for my office

[llessac15]

I am one of 3 partners in a medical practice. We currently use a local branch of Wells Fargo Advisors in our town to manage our 401k. Recently, our accountant came to me with the average returns of each employee's 401k with concern because many were negative for each of the last three years. I was dumbfounded how someone could be negative in 2014 and 2016. 2015 is understandable. I know that the advisors use active management funds to invest my employees money, but I don't know the exact funds. I personally don't let them make decisions with my money and have instructed them to put all of my money in the Vanguard Lifestrategy Growth Fund. But, most of my employees have no idea about finances and don't have a clue about this stuff. I feel like my employees would be better served with just putting their money in an all-in-one fund with Vanguard or such company like I do.

My questions is:
Is there a way that I can set up a 401K for my employees without involving a financial advisor group. We could just provide 10-20 good index-type funds and teach the employees which fund would be best for them. This would avoid the 1% fee an advisor would charge and, in my opinion, give them better investment options. Thoughts?

[Virajith Wijeweera]

If you are the Plan Sponsor, you act as a fiduciary for the Plan so you are held responsible for almost all aspects of the Plan including selecting and maintaining an investment lineup.  You can delegate some of these fiduciary responsibilities.  If you hire a 3(38) ERISA fiduciary, you pass on the full responsibility of selecting and maintaining an investment lineup for the Plan.  If you hire a 3(21) ERISA fiduciary, you share the responsibility of selecting and maintaining an investment lineup for the Plan. Most financial advisors who manage workplace retirement plans act in either fiduciary capacity.  You don't have to pay 1%.  There are a quite a few low-cost advisors out there.

[braceurself]

Check out employee fiduciary out of mobile, al. That’s who I used for my dental practice.

[Virajith Wijeweera]

I don't believe Employee Fiduciary acts as a 3(38) or 3(21) fiduciary.  They provide TPA and Recordkeeping services.  However, they do offer you access to a network of financial advisors for you to choose from.

If your Plan is new, the EF is probably the cheapest TPA/RK option out there.  They charge a base fee plus % of assets under management (I believe it is around 8 bps).  However, if your Plan has already assets, they may not be the cheapest depending on your Plan's asset size.

Vanguard Small Business Retirement Plans also offers TPA/RK services starting around $2,500 annually.

[Craigy]

Call Vanguard.  They will help you out.  Very inexpensive, and you can pass some of that onto the participants.

[spiritrider]

Vanguard's Small Business Plan is really only co-marked with and really offered by Ascensus as the TPA/RK. The last I knew, the minimum yearly administrative fees are, $3,475 for up to 15 employees with tiers for additional per employee costs.

[braceurself]

Follow up comment - I have 8 employees.  When I priced EF vs vanguard, EF was the winner up until your plan assets hit $2.5mil.  Also, they use a company called Frugal Financial if you want to offload the fiduciary responsibility and use their investment lineup recommendations.  They charge .10%.  I chose not to use and figured that switching from high cost american funds that were charging my employees (and myself) exorbitant fees showed some fiduciary responsibility on my part.  Overall, I have been very happy with EF over the past year or so.

[Craigy]

braceurself wrote:

Follow up comment – I have 8 employees.  When I priced EF vs vanguard, EF was the winner up until your plan assets hit $2.5mil.  Also, they use a company called Frugal Financial if you want to offload the fiduciary responsibility and use their investment lineup recommendations.  They charge .10%.  I chose not to use and figured that switching from high cost american funds that were charging my employees (and myself) exorbitant fees showed some fiduciary responsibility on my part.  Overall, I have been very happy with EF over the past year or so.

Click to expand...

You should monitor and re-price this regularly.  Thresholds and costs are coming down pretty rapidly these past few years.

[Gold Medal Waters]

Solid comments by Virajith, Craigy, spiritrider, and braceurself.

Here's my understanding based on experiences:

• Vanguard (VG) will be (most likely) be slightly less expensive.  The reduction in cost will be due to the fact that they don't have a custodial charge vs. Employee Fiduciary (EF).


• As spiritrider suggested, VG is pretty much just an Ascensus plan with VG funds.  VG also offers a 0.09% 3(38) option too.


• EF's 3(38) service, Frugal Financial, selects mostly VG funds.


• Cost should not be your only consideration.  You may experience a difference in the level of customer service between the two.


• As Virajith stated, 1% seems high for a 401(k) plan.

Considerations based on your initial question:

• If you are going to go it alone, make sure you follow a prudent process.


• Here's a look at what should be included in your process:  https://www.fi360.com/uploads/media/PT_Stewards.pdf