Updated: May 1, 2024

The 401(k) checklist: How to choose the right 401(k) provider for your small business

Article provided by: Guideline

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Smart small business owners know that having a 401(k) plan can help boost employee satisfaction and save on both personal and business taxes. In fact, employees who are offered a retirement plan are almost twice as likely to be satisfied with their company’s overall benefits package.


But choosing the right 401(k) provider for your small business can be a complicated, costly, and confusing process. This article will walk you through the right questions to ask to set yourself and your employees up for retirement.


First, let’s start with some common misconceptions about 401(k) plans.



Myth: They’re difficult to set up and maintain.


Fact: While plans can definitely be overwhelming to understand and strenuous to both create and maintain, small businesses have more options now. In recent years, more fully-bundled 401(k) providers have popped up to do the heavy lifting for employers by taking most of the 401(k) set-up and administration responsibilities off your to-do list.



Myth: My employees won’t participate.


Fact: If a 401(k) plan seems confusing to you, your employees may feel the same. Choosing a modern 401(k) with an easy-to-use interface will make them more likely to get on board.



Myth: They’re for larger companies who can afford them.


Fact: Many 401(k) providers now offer small business solutions at affordable rates. Additionally, the tax advantages for offering retirement plans to employees often offset some plan fees.

Myth: I can’t afford employer matching contributions on my small business budget.


Fact: Not only do matching programs vary widely, they are optional. Even if your small business is unable to afford a match, you can still offer your employees a 401(k) plan so that they can contribute their own money.



What are some of the key responsibilities that a 401(k) providers can help you handle?

  • Plan design and setup: Document your plan, coordinate contributions with your payroll provider and custodian, and designate fiduciary responsibilities.
  • Enrollment and education: Explain your plan to employees, educate them on investment options, and give them timely notice of plan changes.
  • Administration and recordkeeping: Deduct and deposit employee contributions from payroll, make employer contributions, and keep track of transactions.
  • Compliance and reporting: File IRS Form 5500 and complete compliance testing annually.
  • Investment management: Choose a provider and a selection of investments. Ensure investments are chosen and maintained with the best interests of employees in mind.


To help you find the best 401(k) plan, we’ve put together a detailed checklist of specific questions to ask the 401(k) providers you’re considering.

Ease of use for participants

Can employees easily view and make changes online? The ability to access and view their investments can put your employees’ minds at ease and assure them that their money is well taken care of.


Does the 401(k) provider offer an online employee dashboard? Having an easy to use dashboard can inspire participation from your employees.


Will they provide support and education for your employees? Having help can make your employees feel more comfortable participating in a 401(k) plan.

Support with onboarding, plan design, plan setup

Does the 401(k) provider support automatic enrollment? Automatic enrollment can help with plan participation and getting your employees to a successful retirement.


Does the 401(k) provider offer Safe Harbor Plans? Safe Harbor 401(k) plans may allow companies to bypass annual nondiscrimination testing by the Internal Revenue Service. If your company meets the requirements for a Safe Harbor Plan, you can avoid worrying about failing certain nondiscrimination tests that apply to regular 401(k) plans.


Does the 401(k) provider offer the chance to make profit-sharing contributions? Profit-sharing is a way for companies to help participants get closer to their retirement goals. Some companies charge an extra fee to calculate profit sharing.

Ease of day to day administration

Does the provider integrate your 401(k) plan with your payroll service? With an automated integration, contributions can be made automatically at the same time participants are paid, reducing manual work and errors.


What is the provider’s policy and response time on support inquiries? With a good client support response time, you’ll have peace of mind in case you have a question or something goes wrong.


Will the 401(k) provider administer changes employees make to their plan (savings rates, rebalancing, enrollment status, etc)? How easy is it to make changes? 401(k) companies that can automate many plan changes can make for a smoother experience.

Investment options

Does the advisor manage and/or recommend high-quality investments? A wide variety of mutual funds can make investment decisions difficult. Investment managers can help your employees choose the portfolio that best fits their financial goals.


Does the fund lineup include low-cost funds? What are the expense ratios? Low-cost target-date funds, which are designed to invest aggressively when they are initially released and gradually reallocated more conservatively over time, are usually good options for novice investors. Even better are low cost managed portfolios that may be chosen for you not just based on your time to retirement, but also on your specific ability to tolerate risk.


How much does the 401(k) provider cost? Typically, plan fees decrease as the size of the plan (both in participants and assets under management) increases. Either way, these fees can add up and eat into your and your employees’ 401(k) savings. In addition, some 401(k) plans have additional “hidden” fees (e.g., fees that are buried in the service agreement and generally taken out of assets under management) for services like recordkeeping and investment management. Make sure to ask any 401(k) companies you consider about these fees.


Is the 401(k) provider commission-free? Do they receive revenue sharing or other compensation from any funds that are in the plan? Choosing a commission-free option that does not receive revenue sharing will ensure your company isn’t paying more than it needs to.


What are the fees for additional services? Check with your 401(k) on their fees for additional services, including processing 401(k) loans, paper checks, terminations, and rollovers.

Support with reporting and compliance

How often does the provider run non-discrimination checks? Projecting non-discrimination testing is helpful so employers can take necessary steps to manage potential testing failures.


Does the 401(k) plan provider complete and file the Form 5500 for your plan?

Fiduciary duties and liability

Is the provider a 3(16) fiduciary? This fiduciary takes responsibility for all of the day-to-day administrative work for the 401(k) plan, taking the burden off the employer.


Is the 401(k) provider a 3(38) fiduciary? This fiduciary takes on the role of selecting, monitoring and managing the plan’s investment offerings.


Will your plan be covered with a fidelity bond? The Employee Retirement Income Security Act of 1974 (ERISA) requires certain individuals who are responsible for the day-to-day administration of a 401(k) plan to be covered by a fidelity bond. Having a fidelity bond ensures that any losses policyholders may incur as a result of fraudulent acts committed by the plan provider’s employees are insured.


Does the provider have an information security policy? This policy ensures that all information stored digitally is secure and that any person with access to the information is complying with the rules and guidelines related to the security of that information.

This article was written by Guideline, OnPay’s partner for easy, low-fee 401(k) plans. Learn more about OnPay’s payroll software integrations, or see how Guideline helps small businesses offer a great retirement plan.