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Should Your Company Use Your PEO’s Retirement Plan?

04 08 2021

In the world of company benefits, great 401(k) plans are the most sought-after, with health insurance coming in second. As potential candidates ‘shop’ employers for the best benefits package, the company’s retirement plan often leads the conversation with candidates asking about the company match and other perks such as profit sharing.

While companies may already have a 401(k) in place through a connected financial professional, going the route of an outside solution may be their best option for the long term. PEO’s like AspenHR also offer a 401(k) plan as part of your contract. Here are the options available to your company when it comes to providing your employees with a 401(k) plan:

Option #1- Offering your own 401(k) plan.

Changing 401(k) providers is much easier if you directly set up your plan through a financial advisor or institution. If you cut ties with the advisor or institution, you can quickly transfer your 401(k)plan to another. However, each time you make the change, you encounter a blackout period.

A blackout period is where no asset purchases occur, which can impact employees’ ability to take advantage of potential market gains. Also, employees cannot modify their investment choices during this time. Switching providers also can cause confusion among employees, becoming an issue when employers constantly switch providers.

Lastly, sponsoring your plan can be expensive. Your company will have to pay the plan administration cost themselves versus grouping your plan with other companies.

Option #2- Offering a 401(k) plan from your PEO provider.

PEOs can group your 401(k) with other employer 401(k) plans inside an MEP (Multiple Employer Plan). This option removes some of the 401(k) liability from your company, making the PEO responsible for the following:

  1. The 3(16) lists the PEO as the plan administrator and places responsibility on the PEO to maintain records, authorize investment decisions within the plan, determine the eligibility of 401(k) participants, and file form 5500 with the DOL each year.
  2. Role 3(38) puts the PEO in a fiduciary role and having legal responsibility for the 401(k) plan’s investment manager. This action removes the liability away from the employer. The employer is no longer liable for reporting on investments, selecting investments in the 401(k) plan, managing investment policy statements, or replacing investment options. Additionally, employees can’t sue the employer for 401(k) problems that may arise while they’re in the plan or no longer employed, but their 401(k) remains.
  3. The PEO also assumes role 3(21), which provides employees with educational materials and access to investment advice through a financial professional.

Besides removing liability away from the employer and onto the PEO, the administrative costs of a 401(k) plan significantly reduce for the employer:

  • The fees associated with the PEO 401(k) plan are less compared to having your own- disclosed by reviewing the 408(b)(2) fee disclosure form.
  • The PEO is responsible for the annual IRS audit through form 5500.
  • PEO 401(k) fees are inside the fund’s expenses, saving employees on the quarterly charge they pay.

On April 8th, 2021, we welcomed Jeff Dickerson, Vice President of Registered Representatives at Slavic401k, to discuss retirement plan design considerations and the value of the AspenHR Multiple Employer Plan. You can view this webinar here.

At AspenHR, we provide HR Managed Services via our PEO and ASO solutions to Asset Management firms, RIAs, and alternative investment funds. Our white-glove service model enables our clients to truly focus on their core business while becoming best-in-class employers. Our specific services include HR compliance and consulting, employee benefits (medical dental, vision, life, disability, 401(k), and payroll administration.