For years human resource professionals have known that employees value benefits more than salary.  A recent study quantified this with responders stating that they would forego a salary that was up to 30% higher to have a job that provided strong and inexpensive benefits plans.  While medical plans were the highest valued benefit, access to a 401(k) plan was second.  The problem small businesses have faced in the past is that 401(k) plans are expensive and time consuming to maintain. 

First you need to hire a specialist to draft the plan documents, which can cost up to $5,000.  However, these costs do not stop there.  The Internal Revenue Service and Department of Labor are continually modifying existing regulations or passing new ones that need to be incorporated into the plan documents each year.  Mandatory discrimination testing must be performed annually and any exceptions must be addressed in a timely manner.  The plan is also required to file an annual Form 5500 to disclose financial details of the plan.  And in the current environment of transparency, there are multiple disclosures that must be distributed to all participants during the year.  All of these compliance requirements mean more fees that the small business must pay to a specialist each year to avoid penalties.

Then you need to hire a record keeper who will maintain all of the investments and track all employee and employer contributions, as well as the earnings on each, for each participant.  This includes any employee loan transaction, distributions, hardship withdrawals and vesting schedules.  This involves a sophisticated IT system that not only tracks this information, but also makes the information available online to participants so they can review their balances and change investment options.  Additionally, they need to prepare and mail our quarterly statements to all participants.  Of course, the record keeper does all of this for a fee.

Lastly, you need to hire a financial advisor to help select the investments to be included in the plan, monitor their performance.  The financial advisor also conducts annual education/enrollment meetings for all participants.  Also, since company employees are prohibited from providing financial advice to participants, the financial advisor also help participants in selecting the investments they want for their contributions.  And yes, you guessed it, they do all of this for a fee.

After hiring all of these specialists and paying them all of those fees, guess who is still responsible if something goes wrong with the plan.  That’s right, it is the small business owner and they can be held personally financially liable. 

Now you understand why so many small business owners do not offer a 401(k) plan.  Of course, there is an easy and cost effective solution.  Multiple Employer Plans, or MEP’s, allow small businesses to group together to form a 401(k) plan, which provides economies of scale to spread these costs, many of which are fixed, over all of the participating employers.  This makes the plan much more affordable for the participating small businesses. 

In the past, small businesses needed some form of affiliation, such as a trade association, to create a MEP.  However, there is an exception to this.  Professional Employer Organizations (PEO’s), also known as employee leasing companies, can group unaffiliated companies together into a MEP.  Also due to their size and scale, they provide many added benefits to small business owners such as low or no fees, performance of all plan administrative responsibilities and assumption of all plan fiduciary risk and liability.  Thus, the professional employer organization provides the small business owner with a turnkey 401(k) plan at little or no cost and with limited fiduciary liability.

So spread the word about MEP’s to all of the small businesses that you know or work for.  And also let them know that Total Team Solutions is a PEO that has more than 30 years of experience and offers a no cost multiple employer 401(k) plan to all of their clients.  For more information the Total Team Solutions 401(k) plan or any of our other services, (payroll, benefits administration, human resource compliance, employee relations) check out our website at www.ttspro.com or contact John Morlock at jmorlock@ttspro.com.