Employee Retirement Plans Review
Why Use an Employee Retirement Service?
The top performers in our review are ADP, the Gold Award winner; Fidelity Investments, the Silver Award winner; and Paychex the Bronze Award winner. Here's more on choosing a service to meet your needs, along with detail on how we arrived at our ranking of these 10 providers.
Providing a retirement program for your employees is not a government-mandated benefit like health coverage. However, employers that offer such benefits often have more satisfied, devoted employees.
While you can set aside some money in a bank savings account, the rate of return is very low, compared to designated retirement accounts. This is because retirement accounts are invested in more aggressive ways, including stock purchases, mutual fund investing and saving bonds. Additionally, retirement funds provide several tax advantages, such as income credits and deferred tax payments, that are not available with savings accounts.
Retirement accounts must be held by a certified trustee. A trustee is a company that holds the assets, or money, of the retirement account and oversees the day-to-day management. Trustees must be recognized by the Department of Labor (DOL) and the Internal Revenue Service (IRS) as a legitimate, secure place to properly hold and invest retirement funds. Trustees are required to submit specified forms and reports throughout the year demonstrating their compliance with DOL and IRS rules. Depending on the type of plans it offers, a trustee can be an investment firm, brokerage service, insurance company or bank.
There are several pages of laws and policies dictating how a trustee should manage its retirement investments, including assisting employers in complying with applicable laws and regulations. All of the companies in our review are properly licensed and are recognized by DOL and the IRS as legitimate providers of employee retirement services.
Choosing the Best Retirement Plan for Your Employees
The most important factor influencing which retirement service your business needs hinges on the type of plan you intend to offer to your employees. Here is a quick breakdown of the most common types of plans:
401(k): Traditional and Roth 401(k) plans are employer-sponsored plans that allow employers to match employee contributions to a certain point, usually six percent or less. Traditional plans deduct contributions from an employee's paycheck prior to taxes being assessed, making the taxable income much less. These savings are then subject to income taxes once they are withdrawn when an employee reaches the appropriate retirement age (currently between 55 and 59 1/2). Roth 401(k) contributions are deducted from an employee's paycheck after income tax has been withheld. These funds are not subject to income tax when they are distributed at retirement. The benefit of a Roth 401(k) is that funds are taxed at the current income tax rate, which is likely to be significantly lower than rates at the time of retirement.
Two other types of retirement plans, owner-only and safe harbor 401(k)s, are not as commonly known. Owner-only plans are for self-employed individuals who don't have employees but would still like to take advantage of a retirement plan. Safe harbor plans are designed to help employers distribute contributions in such a way as to avoid the requirement of annual discrimination tests administrated by the IRS while still providing an employee retirement plan with equitable contributions to all participants.
There are a few 401(k) companies, including Employee Fiduciary and ePlan Services, that specialize in 401(k) plans.
IRA: Individual retirement accounts, or IRAs, are an employee-sponsored plan. Workers choose to distribute a portion of their paycheck into a savings account without an employer match. Employees generally open these accounts through their own bank. However, IRAs can also be managed by the same trustee that manages other retirement accounts, such as pensions and 401k, so that all accounts are in one place. An employee simply has to elect for current IRA accounts to be transferred to the new trustee. If a worker doesn't already have an IRA account, providing this option through the company's trustee gives another benefit option to your employees. This gives workers more flexibility when saving and makes it easier to monitor contributions to each account in one place. As with 401(k) accounts, traditional IRAs are considered pre-tax contributions while Roth IRAs are funded with money that has already been taxed. Prudential is one company that manages both 401(k) and IRA accounts on behalf of your employees.
An SEP-IRA is a special IRS program designed to allow employers to contribute to an employee's individual retirement account, or IRA. While Simplified Employee Pension plans can be used by any size company, the IRS encourages SEP plans for small businesses since they allow a company to have a retirement plan incentive without the mandatory match contributions required of a 401(k) account. Even self-employed individuals can use this plan as a legitimate way to contribute company profits into a personal IRA account.
If you elect to offer an SEP plan, you cannot extend any other retirement plan to your employees or to yourself. Each participant must receive equal compensation; however, you can choose how much to contribute throughout the year so that your contributions are in line with your company's profit cycle. For example, an accounting firm may choose to contribute more during tax season when profits are more, and less during other times of the year.
Pensions: Pensions are retirement accounts that are contributed to by an employer on behalf of the workers. The funds are invested and provided as a lucrative benefits package to employees that retire from the company. Defined benefit plans allow an employer to guarantee a specific amount of money at the time of retirement, regardless of the overall amount within the fund. Employers can set stipulations on these plans, such as how long the employee must have worked for the business prior to retiring and receiving the pension benefits. In addition to our best retirement plan services, Nationwide also specializes in defined benefit plans.
A Salary Reduction Simplified Employee Pension plan, or SARSEP, is for small companies with no more than 25 employees eligible for a retirement account. A SARSEP requires a portion of an employee's salary to be reduced and then allocated to and saved in this account. However, one stipulation for this type of plan is that at least half of all eligible employees must commit in order for the company to be eligible to offer this benefit. Those trustees, such as AXA Equitable, can guide you through the process of setting up and managing an SARSEP fund.
What to Look for in a Retirement Benefit Provider
Because retirement plan providers are closely regulated, there isn't a clear divide between the best retirement companies. The two biggest factors the differentiate trustees are cost and customer service support.
The majority of the companies we reviewed give customized quotes based on your company size, the type of retirement plans you require, and any additional services you use through the provider, such as insurance, payroll, or other investment opportunities. You should expect to pay a one-time establishment fee for setting up your account, in addition to an annual subscription fee to cover the day-to-day management of your and your employees' retirement accounts.
ShareBuilder 401(k) has a minimum $250 set-up fee for all companies regardless of their size or retirement-plan needs. It also charges a minimum .45 percent asset-management fee. These costs are based on specific asset amounts. If your company has less than the required amount, your fees will be higher.
Customer Service Support
The other important factor you need to consider when choosing an employee retirement service is the level of the customer support offered. All services have some form of email and telephone support but vary depending on each provider's hours of operation. The majority are available during traditional business hours while others, such as Fidelity, have support representatives available 24/7.
Our support score reflects our experience interacting with each provider's customer service personnel. We took several factors into consideration, including how long the provider took to respond to our email inquiries, how long we waited on the phone as well as the friendliness and knowledge of the representatives we spoke with. Companies that connected us immediately with knowledgeable representatives, rather than associates tasked with gathering contact information, received higher Help and Support scores. Employee Fiduciary received the highest marks scoring 100 percent.
Our Verdict & Recommendations
Retirement plans, such as a 401(k) plan, safe harbor plan, SIMPLE IRA, and others, are crucial to helping you and your employees live comfortably in retirement. Choosing the right service provider that helps you and your employees prepare for the future is a decision that lasts a lifetime. While our top picks, ADP, Fidelity Investments, and Paychex, offer every plan imaginable, any of our top 10 services can help you design a retirement package to help your company be competitive while providing an important benefit to you and your workers and helping you remain in compliance with the various laws and regulations imposed by DOL and the IRS.