401(k) Plans-Tips on Controlling 401(k) Plan Costs

401(k) plan costs are difficult to control. This information on 401(k) plans will help you limit them.

401(k) Plan Cost Control Tips-General

401(k) plan costs can be controlled by reducing employer contributions as well as by lowering expenses regarding investment, administration/compliance, recordkeeping and employee communications. Negotiation with the organizations providing 401k plan services, switching to other 401k service providers, performing tasks in-house, or shifting costs to employees are general suggestions to control 401(k) plan costs.

401(k) Plan Employer Contribution Cost Control

Employers can reduce their 401(k) plan contributions by the following:

401(k) plan tip #1: Increase employee deferral contributions to reduce any employer 401(k) contributions that may be needed to satisfy non-discrimination requirements. Employee deferrals can be increased by improving employee communications, selecting the right employer matching contribution, providing greater availability for plan loans or having a mandatory enrollment program. An increase in employee deferrals can also result in lower unit recordkeeping and administration costs.

401(k) plan tip #2: Delay participation in the plan as long as possible or do not provide a contribution to certain participants who leave during the year. Caution should be exercised in pursuing this approach, since it may provoke resentment from employees.

401(k) plan tip #3: Delay vesting as long as possible, although adverse reactions from employees should be taken into account.

Controlling 401(k) Plan Investment Costs

Employers can reduce their 401(k) investment plan costs by the following:

401(k) plan tip #4: Eliminate unnecessary expenses. For example, many insurance companies have contract fees, while mutual funds may have wraparound fees for funds other than their own.

401(k) plan tip #5: Negotiate with the organization currently providing investment services. This can be accomplished by informing them that plan assets have grown, lowering per unit costs.

401(k) plan tip #6: Switch the investment management function to another service provider. This may necessitate switching all 401(k) plan functions to the new provider, so caution should be exercised.

401(k) plan tip #7: Shift investment costs to employees by having them deducted directly from their accounts. This is obviously easier to do, when the plan is established than to change at a later date and may generate employee resentment in either case.

Controlling 401(k) Plan Administration and Compliance Costs

Employers can reduce their 401(k) plan administration and compliance costs by the following:

401(k) plan tip #8: Negotiate with the organizations providing services. Indicate that the participant base has grown, lowering the cost per participant.

401(k) plan tip #9: Switch to a service provider with lower charges. This may be difficult to do, since the new service provider must review the history of the case and may charge a takeover fee.

Controlling 401(k) Plan Recordkeeping Costs

Employers can reduce their 401(k) plan recordkeeping costs by the following:

401(k) plan tip #10: Perform the recordkeeping in-house if the employer has the staff to do so.

401(k) plan tip #11: Switch recordkeeping charges to employees' accounts. To limit resentment from employees, it is advisable to assign these charges upon establishment of the plan.

401(k) plan tip #12: Negotiate with the organization providing the services, indicating that the participant base has grown, lowering per participant costs. Since many service providers subsidize their recordkeeping and administration expenses with management fees, employers should use care in analyzing these expenses.

Controlling 401(k) Plan Employee Communication Costs

Employers can reduce their 401(k) plan employee communication costs by the following:

401(k) plan tip #13: Good employee communication can increase enrollment and reduce costs. Performing some in-house communication using packaged goods such as computer software programs may help, but it may be better to leave this function to benefit communication professionals.

401(k) plan tip #14: Eliminate unnecessary communication materials.

401(k) Plan Further Assistance

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