Guide To Choosing a 401k Plan Provider

Most employers hire a plan provider to manage their 401k employee retirement plan, even though it is possible to administer the plan for oneself. Employers have a number of different options to choose from when selecting a plan provider.

It is essential to make the right choice, so employers need to find out as much as they can about plan providers before they commit to using a particular service. Ideally, the chosen plan provider should have experience handling 401k retirement plans and they should be able to offer a suitable range of good investment options.

The easiest way to set up and manage a 401k employee retirement plan is to work with a bundled provider, also known as a full service provider. These types of providers, which include mutual funds, banks, insurance firms and third party administrators, offer the whole range of services that are required. The employer only has to deal with one service provider, which makes organizing their 401k plan much easier. The simplicity of working with a bundled provider is particularly advantageous for small businesses. The disadvantage of choosing a full service provider is that flexibility will be reduced.

Choosing an unbundled provider is another option, but it does mean that organizing the 401k is more complicated because it is necessary to work with multiple services. Usually, a provider will be hired to manage the 401k and the investments, while an HR professional will be chosen to perform the administration. This will enable the employer to enjoy more flexibility, but it will also raise the costs.

Mutual fund companies, despite the fact that their investment options are limited to only their own funds, are the most popular provider of 401k plans. This is partly due to the fact that their services are aimed at small to medium businesses while banks tend to target bigger employers. However, the fact that working with a well-known firm can help encourage participation in the plan among the employees also contribute to the popularity of mutual funds as 401k plan providers.

Insurance firms can offer a better service to employers who are looking to set up a more complex 401k plan. Insurers can also present a wider range of investments than they were traditionally able to offer. An insurance company can be an expensive choice of provider, however.

Small employers may benefit from working with a third party administrator. These providers tend to be smaller, so they are more willing to spend time working with a small business, while mutual funds and banks prefer to focus on their larger clients. Third party administrators also provide employers with an excellent range of investments.

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