How to Pick the Best Small Business 401(k) Plan Provider

To attract and keep talented employees, it can be a smart move to add a 401(k) plan to your small business. As a result of the SECURE Act, which was passed in 2019, there are now more opportunities for small employers to offer retirement plans. The law allows small businesses to participate in pooled employer plans, making it easier and less costly for small employers to provide workers with a retirement plan. Here’s how to select the right 401(k) plan provider for your small business.

[Read: Retirement Plan Options for the Self-Employed.]

Find the Best 401(k) Providers for Small Business

Since there are many providers to choose from, keep in mind that not all will offer the same services or prices. Some 401(k) plan providers cater to smaller companies, such as a startup or those with fewer than 50 employees, while others are set up for medium-sized or large businesses.

These providers specialize in 401(k) plans for small businesses:

American Funds. Small businesses of any size, from startups to those that have recently merged, can find traditional and Roth options through this provider.

Betterment. Through its online cost calculator, small business owners can enter their number of employees and plan preferences to gain a personalized estimate of 401(k) costs.

Charles Schwab. Charles Schwab provides 401(k) plans for companies of any size and creates customized plans to fit a business’ specific needs.

Employee Fiduciary. With 401(k) plan establishment fees that start at $500, Employee Fiduciary provides personalized service from setup through plan administration.

Fidelity Investments. Fidelity has small business 401(k) plans available for businesses with more than 20 employees and an app that employees can use to monitor their accounts.

How to Set Up a 401(k) for a Small Business

To offer a 401(k) plan for employees, the IRS lays out four steps to get started. These include:

Adopt a written plan. If you have assistance from a professional or a financial institution, this step will usually be provided for you.

Arrange a trust for the assets. A plan’s assets need to be in a trust to make sure they are used only for the participants and their beneficiaries.

Develop a recordkeeping system. If you work with a financial institution, you can generally expect to have help with keeping the necessary records.

Communicate information to employees. This includes sharing details about the plan with workers who are eligible to participate.

You will also have to decide on the type of 401(k) plan to offer employees. This could be a traditional 401(k) plan, a safe harbor 401(k) plan or an automatic enrollment plan. With a traditional 401(k) plan, the employer can elect to make contributions for all plan participants or offer a 401(k) match, but is not required to contribute. A safe harbor 401(k) plan requires the employer to make annual contributions on behalf of employees. An automatic enrollment 401(k) plan permits the company to automatically sign employees up for the plan and place salary deductions in certain investments.

[Read: How Much Should You Contribute to a 401(k)?]

Consider Whether to Match Employee 401(k) Contributions

Many employees rely on a 401(k) plan to help fund their retirement. “In our experience, a company’s contribution to the plan has become a key recruitment and retention tool of high-performing leaders,” says Eric Shisler, vice president and director of research and retirement plan services at Budros, Ruhlin & Roe in Columbus, Ohio. You might offer a match which consists of a percentage of an employee’s contribution, up to a specified percentage of the employee’s salary. Or you could provide a match up to a certain dollar amount.

Another type of employer contribution is 401(k) profit sharing, which allows a business to set aside a portion of its pre-tax profits in employee retirement accounts. You may choose to contribute a certain dollar amount, or a percentage of each employee’s salary. Before committing to contributions, you’ll want to think about short- and long-term profit projections. “Another key consideration for business owners when setting up a plan is if the company can sustain their contribution if cash flow fluctuates,” Shisler says.

Look at Small Business 401(k) Costs

Providing 401(k) accounts to employees will come with fees, and you should carefully sort through the fine print before selecting a 401(k) plan. A small business 401(k) plan might charge recordkeeping fees, investment fees and transaction fees.

Keep in mind that fees might change if the company hires more workers. “Look to understand how the fees quoted may change as the plan grows,” Shisler says. “Plans with the cheapest pricing upfront are not always the cheapest plans over time, especially with well-funded plans.”

Consider the Small Business 401(k) Investment Options

Look for a 401(k) plan that provides an assortment of investment options, rather than just a few ways to invest. “One of the major things that you want to look for in a plan for small companies is what kind of lineup of investment options will be available to the employees,” says Mike Scarborough, president and CEO of Oak Wealth Partners in Lexington Park, Maryland. “It should be broad-based in the sense that it should have large and small stocks, various types of bonds, some international exposure that is very broad-based, as well as emerging markets.”

[See: 9 Ways to Avoid the 401(k) Early Withdrawal Penalty and Other Fees.]

Carefully Select a Small Business 401(k) Provider

You’ll typically want to involve experts in the financial industry to help oversee the 401(k) plan. “Many individuals in the financial services industry can sell you a plan, but usually there are certain advisors who specialize in working with 401(k)s,” says Art Haws, CEO and managing partner and HawsGoodwin Wealth in Franklin, Tennessee. “They can help you navigate the many issues and decisions made when starting and maintaining a plan.”

A trustee will manage the 401(k) plan assets, and carries the responsibility of making decisions according to the plan’s terms. A 401(k) custodian does not make management decisions, but holds plan assets.

When researching options, ask about the third party administration setup. “Some plans bundle the TPA services like plan design and documents, testing and tax preparation, while others require you to work with an outside TPA,” Haws says. “An experienced financial advisor can help explain the benefits of either, and recommend the best solution for your specific situation.” Some financial professionals will help you communicate about the retirement plan to employees. Also ask about payroll integration, as a 401(k) provider with payroll-related services might make your 401(k) plan easier to manage.

More from U.S. News

How to Set Up Your First 401(k)

401(k) Mistakes to Avoid

New 401(k) Contribution Limits for 2021

How to Pick the Best Small Business 401(k) Plan Provider originally appeared on

Update 08/04/21: This story was published at an earlier date and has been updated with new information.

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