Employee Retirement Plans

By Bethany Ramos

Your objective in setting up a retirement plan is to provide your employees with a valuable benefit that will enhance your ability to attract and retain the best staff.

Costs of different types of retirement plans

The cost of retirement plan administration and record-keeping depends on the type of plan:

• A SEP IRA plan for a small business is one of the easiest to set up and generally has the lowest cost. Some plan providers waive administration fees altogether. However, when administration fees are waived, the administrator will charge for each on-line equity trade. Each trade can be $7.95 or more.
• A simple IRA is more robust than a SEP IRA but has a slightly higher administrative cost. A business may pay $10-$25 in a custodial fee per year per account with no ongoing administrative fees from some providers.
• The cost of a 401K plan will depend on the features and flexibility you want, such as how many investment options the plan offers. A 401K plan with an expense ratio of 1% or less is considered reasonable; some providers allocate 401K administrative fees at $45 per participant.
• A defined benefit plan requires a significant amount of administration, and the cost can be high compared to defined contribution plans. Some providers estimate defined benefit plan administrative fees at $195 per account.

In choosing the right plan, two primary concerns include the cost of:

1. Retirement plan administration
2. Retirement plan record-keeping

More on retirement plan costs
Before you begin fretting about the cost of retirement plan administration and record-keeping as an employer, there is good news on the horizon. The US Department of Labor published new rules for retirement plan provider fee disclosure as of July 2012.

Currently, providers are required to reveal all associated costs with a 401K plan to protect a business from taking a hit from hidden fees. But what do these retirement fees entail exactly?

As explained by the Employee Benefits Security Administration, there are three main fee categories involved in operating a retirement plan:

1. Investment fees are the largest component of the cost. These fees are generally a percentage of the assets invested and may be charged indirectly as a deduction from the investment returns, so they may not be readily apparent. Employers should heed investment fees as they can make a major impact on retirement expenses; net total return will be reflected after investment fees are deducted.
2. Plan administration fees are charges for day-to-day operation. This includes record-keeping, accounting, legal, and trustee services. If you offer a 401K plan, there could be charges for additional services, such as online access to plan information and transactions, investment advice, retirement planning software, and a customer service representative. These costs may be included in the investment fees or could be billed separately. As a general rule, the more administrative services that a provider offers, the more fees they will charge.
3. Individual service fees are charges for optional features provided under an individual account plan. For example, there may be a fee for taking a loan from the plan or for carrying out individual investment instructions. These fees may be charged directly to the account of the individual who requests the particular service. Other individual services that merit a charge may include a Qualified Domestic Relations Order that will recognize an alternate payee to receive benefits on an account.

The cost of retirement plan administration and record-keeping may be charged by just one provider in a bundled arrangement, or each provider of different types of services, such as the investment manager, trustee, record keeper, and communications firm, may charge separate fees. There could be additional fees for initial setup, plus a monthly flat fee or per employee fee.

Understanding retirement plan tax benefits

If you have 100 or fewer employees that earned a minimum of $5,000 in the past year, you can claim a tax credit for the cost of retirement plan administration and record-keeping. Eligible expenses included within the tax credit will cover the start-up cost of a retirement plan, as well as any expenses needed to educate employees about retirement options.

The credit is 50% of the cost of setting up a SEP, Simple IRA, 401K, or other qualified plan and educating employees about the plan, up to a maximum credit of $500 per year for the first three plan years. You can also claim a deduction against your business's federal income tax for the contributions you make to the plan.

BuyerZone can help your company get set up with a comprehensive retirement plan. Submit a request for retirement plan administration quotes, and we can match you to multiple providers in your area.