Top 401k Providers for Startups and Small Businesses (2023)

• Affordability: Using a software solution to administer your 401(k) plans is significantly cheaper than hiring in-house HR personnel to assume that responsibility or engaging a financial services provider that charges hourly or a fixed sum as a monthly retainer.
  
• Automation: The manual management of 401(k) plans is a huge administrative burden on small companies, not to mention all the mistakes and errors that are inevitable with manual labor. A 401(k) software automates plan administrations and cuts down on human errors, allowing business owners to focus on running their company while still providing great retirement benefits to their employees. ‍
• Ease of use, both for employees and employers: 401k software simplifies retirement plan administration for employers and signups for employees. Through them, employees can define the terms for their retirement plans, including contribution amounts, loans, and investment choice, while employers define the terms for matching their employee contributions, vesting, profit sharing, and more. ‍
• Compliance: 401K software helps businesses navigate the complex compliance rules set by the IRS and DOL. This includes having all retirement plan options meet the Employee Retirement Income Security Act (ERISA) guidelines such as fiduciary accountability and non-discrimination.

It’s very easy to make mistakes when choosing a 401(k) solution if you don’t thoroughly research what's available on the market and carefully consider the needs and budget of your business. Here are some of the most common mistakes businesses make:  

• Not checking for hidden fees: 401(k) plans come with various fees that aren't always evident to the investor but can greatly impact an account's return over the long-term. Reflecting mostly administrative and investment management costs, these fees can range from 0.5% to 2%, depending on the size of the 401(k) plan, the number of participants, and the plan provider. Always check with 401(k) software vendors on their additional fees according to your team size. ‍
• Choosing a 401(k) software that doesn’t integrate with your payroll provider: Many employers overlook payroll integration when picking their 401(k). Without it, employers are responsible for maintaining deductions, tracking eligibility, and manually entering data -  wasting a tremendous amount of time and causing costly errors.
• Spending money on features you don’t need: ‘Premium’ doesn’t always mean ‘better’. Many small and medium-sized businesses select a premium, enterprise-grade plan because of all the feature additions they usually come with, but in reality, only half of the features end up being used. We advise that you always invest selectively and wisely.
• ‍Making long-term commitments before thoroughly testing a solution: Before buying a one-year subscription to a product or something even more long-term like a perpetual license - i.e. single-time license purchase -, ensure that you take the time to test the solution and verify that it’s the one for you. This saves you from the potential hassle of going back and forth with the vendor on their cancellation and refund policy. ‍
• Choosing a 401(k) software that isn’t scalable: Your business may see exponential growth within just a matter of months. It may also experience financial hardships, requiring you to downsize your operation. No matter what the future holds for your business, you’ll definitely need a 401(k) software that’ll grow or shrink accordingly.

Like many software products out there, the cost and pricing models of 401(k) solutions vary from one vendor to another. Some vendors charge a flat rate fee per participant per month while others offer annual subscription fees. Monthly fees range from $4 - $9 per user per month and some include a $39 - $150 base fee per month in addition to the user fees. Furthermore, there may also be a training/setup fee, maintenance fees as well as an investment portfolio fee if applicable.

401(k) software can vary in terms of their overall offerings and target audience. While that may be the case, the following are some of the most essential features you can expect from most business-tailored 401(k) solutions available today:

• Eligibility tracking and employee onboarding: Employers can set 401(k) eligibility criteria that employees must meet to participate such as minimum age required and minimum hours of service required. It’s important to note that these requirements are not completely at the employer’s discretion to define and are subject to Internal Revenue Code regulation. 401(k) solutions help you stay compliant with IRC rules, determine eligible employees, and onboard them instantaneously - avoiding penalties and all the hassle of physically going through each employee’s file to check whether they are eligible.
  
• Records management: 401(k) software provides you with a single interface to manage and track all of your employee records, including balances, transactions, withholdings, and salary deferrals. Detailed reports of this data can also be auto-generated.
  
• Integration with payroll providers: Top 401(k) software should integrate with most popular payroll providers to import your employees’ data, including their defined deferral amount, and automatically deduct 401(k) contributions. Having this integration significantly reduces the amount of work involved in handling and reporting employee deferrals with each pay run. ‍
• 3(16) plan administrator and 3(38) investment manager: 401(k) software reduces your liability by acting as your 3(16) plan administrator, ensuring all plans are in compliance with ERISA guidelines while handling the reporting to plan participants and the IRS, as well as your 3(38) investment manager, taking on the responsibility and liability of selecting retirement appropriate funds for participants to allocate their investments.‍
• Frequent nondiscrimination compliance testing: Nondiscrimination tests ensure that a 401(k) plan doesn't favor highly compensated employees (HCEs) or key employees (such as owners) so everyone in the company gets a fair shot at retirement saving. There are four nondiscrimination tests a 401(k) plan sponsor must pass every year: the Coverage test, the Actual Deferral Percentage (ADP) test, the Actual Contribution Percentage (ACP) test, and the Top-Heavy test. Instead of waiting until the end of the year to assess if a plan is compliant, 401(k) solutions perform these tests regularly to keep your plans in constant qualified status.‍
• Safe harbor plans: A 401(k) solution should provide users the option of creating Safe Harbor plans, which are similar to traditional 401(k) plans, except that employer contribution is a mandatory requirement. The main advantage of a Safe Harbor plan is that it is generally exempt from the four IRS nondiscrimination tests, which means key employees and HCEs can receive a lot more in contributions (up to the annual limit defined by the IRS) without compromising the plan’s compliance status.‍
• Hardship withdrawals: A hardship withdrawal is a distribution taken by a participant before the age of 59 ½ due to an immediate financial need or emergency. Whether or not participants can make these withdrawals is up to the sponsor of the 401(k) plan to decide, however, a 401(k) software should provide the option for such withdrawals regardless.‍
• Loans: Similar to hardship withdrawals, participants can take loans from their 401(k) savings that are later repaid according to a defined repayment schedule. While you are not required to include loan provisions in your plan as its sponsor, a 401(k) software should provide you the option to do so.  ‍
• Matching contributions, vesting, and profit-sharing: With a 401(k) software, contributions can be automatically scheduled to become vested in participants’ 401(k) accounts each pay run. They also provide the option for profit sharing so you can make tax-deductible contributions to eligible employees, either based on their compensation or as a fixed contribution.‍
• Owner Participation: Depending on the type of income you receive, you may be able to participate in your company’s 401(k) plan. The majority of 401(k) softwares allow self-employed business owners and their spouses to participate in said plan if they’re registered as one of the following entity types: Limited Partnerships, Partnerships, LLCs taxed as Partnerships, Single Member LLCs, and Sole Proprietorships‍
• Tax filing: A 401(k) software takes care of tax filing and all of the otherwise tedious paperwork for you. This includes preparing and filing the annual Form 5500 and extension requests to the IRS and the DOL, as well as providing Form 1099-R to participants the January after the distribution year then submitting the information reported on the 1099-R to the IRS.

When shopping for a 401(k) software (or any solution for that matter), we always recommend that you schedule as many demos as possible with different vendors to make sure their solution is compatible with the needs of your business. Here are a few questions you can ask during your demos: 

• What type of retirement plans can I offer through your software?
• Does the software perform compliance testing? If so, how often are they performed? 
• Does your system integrate with my payroll system? 
• Do you provide any training on the IRS and DOL’s regulations? 
• What type of funds do you offer for participant investment? 
• Can you walk me through what employees see in their accounts?
• What processes can I automate through your software?
• How easy is it to implement your solution, and would I be able to do it myself?
• What business solutions does your software integrate with?
• What metrics have you used to prove the effectiveness of your solution, and where can I see these in my analytics dashboard?
• How much does the software cost for my team size?

Implementing a 401(k) software is relatively easy. Once you’ve chosen a product and purchased a plan that meets your needs, you can create an account and start defining your retirement plans by setting the terms for employee contribution matching, vesting, profit sharing, etc. Employees are then invited to sign up and define the terms for their retirement plans, including contribution amounts, loans, and choice of investment. Depending on the platform, you may be assigned an account manager and/or have access to a robo-advisor for investment advice.

In terms of deployment, the majority of 401(k) solutions are cloud-based, delivered through a software-as-a-service (SaaS) infrastructure. Getting started with a cloud-based solution is very quick as they all allow you to create an account and start configuring your instance right away.

On the other hand, some 401(k) solutions are self-hosted (on-premise). Self-hosted solutions generally take longer to set up, and depending on your chosen vendor, you may need to consult them regarding their solutions’ compatibility with your current hardware and installation process or better yet, have them do the installation for you.

What is 401k software?

401k software are solutions designed to administer retirement plans quickly and efficiently, avoiding IRS penalties and streamlining your HR processes.

What benefits does 401k software provide?

Benefits of 401k software include affordability, automation of manual processes, ease of use for employers and employees, and simple compliance regulation.

What extra features do 401k software solutions provide?

401k software solutions also provide personalized fiduciary advice, profit-sharing plans, Safe Harbor plans, investment management, compliance testing, and notification systems.