Ask a Zenefits Advisor: How Hard is it to Administer a 401k Plan?

Bud Bowlin has been advising business owners about health insurance and benefits for more than 35 years. For his 70th birthday, we gave him his own advice column. Got a burning benefits question for Bud? Send it to [email protected].

Hi Bud,

We like to think we have a good company culture and competitive benefits package. All that’s really missing is a 401k. We’re thinking of adding this in 2016, but between us (and the readers of your column, who I think might relate), we’re nervous about 401k administration. No one here has ever done it before, and most of us have never even had a 401k. Tell it to me straight: how complicated is it to administer a 401k plan to employees?

Thanks!
Retirement On Good Employer’s Radar

Dear R.O.G.E.R.,

The 401k is the foremost retirement savings tool outside of Social Security. It provides a vehicle for employees to invest in their futures with pre-tax dollars, which reduces their taxable incomes (and also an employer’s payroll taxes). When you factor in employer contributions and the tax advantages, there’s a compelling justification to establish a 401k—and to encourage employees to contribute to their maximum abilities.

So how complicated is administering a 401k? In 2009, Congress passed legislation that helped employers begin automatically enrolling employees in their company’s 401k plan. The result was a huge increase in participation nationally. Unfortunately, professional advice and support for 401ks didn’t improve at the same rate. You and your colleagues (and yes, probably many of my readers) are not alone: Today, folks in HR and management have little to no training on how to administer their company-sponsored plans.

There are many nuances to 401k plans, and rather than devote your days to studying them, my recommendation is to hire or contract with a 401k facilitator who can provide advice and service to your employees. Beware of advisors who are paid based upon their recommendations. This can create a conflict of interest when they make recommendations for stocks, bonds, and investment options that have higher compensation than others.

So how can you, the person responsible for your company’s 401k plan, keep things on the right track? Perform an annual checkup.

Align your goals. Just as you should with your health insurance and ancillary benefits, look at your 401k plan and rediscover why your company started it in the first place. Determine whether the primary purpose and goal is still being met.
Survey the scene. Are current trends being accommodated? Are you using new features? Are all pertinent documents readable and easy to understand? Are both your service provider fees and participant fees clearly disclosed?
Provide current notices. Ensure that you’ve sent the required communications to plan participants. Summary Plan Descriptions, Annual Reports, fee disclosures, and safe harbor notices are all within the responsibility of the plan administrator.
Check on compliance. Has your legal representative reviewed your plan documents recently to insure compliance and the tax-qualified status of your plan? This helps identify any issues, problems or administrative gaps that need to be improved or corrected. Legislative changes and new regulations also come to light in this step.

As a benefits advisor, I understand your nervousness. But you should never allow an administrative burden to stand in the way of such a big benefit. Here at Zenefits, our main goal is to take the paperwork off your plate. If you offer a 401k plan, our software automatically offers all your new hires the option to enroll during onboarding. All the required plan documents are kept current and sent out via automation. Our expert help center guides your employees through their questions about contribution limits, distributions, and more. Our 401k provider handles all the end-of-year compliance testing paperwork for you. With Zenefits, we shave three steps off your annual checkup; all you need to do is decide whether your goals are being met.

In any event, administering a 401k can indeed be complicated, but, thanks to legislation and innovative software, it can also be a cinch. Please don’t hesitate to get back in touch if I can be of further service.