The best 401(k) providers April 2024 (2024)

Why consider offering a 401(k)?

• Retirement savings plans are a top consideration for many employees when they choose where they want to work. Offering a 401(k) plan can help your business attract top talent.
• During the first three years of the plan, employers may receive a tax credit that can help cover the costs of starting a 401(k) plan.
• Employers can deduct matching contributions on the firm’s federal income tax return to a certain limit.
• Employers may be able to offload other administrative tasks to their 401(k) provider, potentially saving time and reducing costs.

Introduction to 401(k) providers

A 401(k) provider allows businesses of all sizes to offer an employer-sponsored, defined contribution retirement plan to their workers. Plan providers custodian employee contributions and may administer the plan, keep records and ensure businesses comply with all government regulations to protect these funds. A good plan provider also encourages employees to save for retirement by providing trustworthy financial education.

What to consider when choosing a 401(k) provider

To find the right 401(k) provider for your company, keep a few factors in mind.

1. Recordkeeping services

First, look for one that has experience working with businesses your size. The right recordkeeper for you helps with plan design and makes it easy to add new employees in the future. Some providers may offer other ease-of-use administrative benefits such as payroll integration and other benefit processes like health savings accounts. Ask about cybersecurity protocols and disaster-recovery programs to make sure records are stored securely.

2. Fiduciary services

In addition to recordkeeping, ask the vendor about fiduciary services. Will the plan provider offer investment recommendations as a fiduciary but allow you, as the plan sponsor, to have some control of what’s offered, or does it allow you to outsource all the investment decisions to a third party?

3. Employee ease-of-use

Think about the plan from the employee perspective. Considering more people work remotely, a plan provider should make it straightforward for employees to enroll online. Forms should be easy to find and fill out, and there should be options for e-signature and e-delivery. Their website should offer plenty of advice when onboarding new employee accounts, whether through documents on its website or strong customer service operations to answer questions either online or over the phone.

To encourage employees to save for their retirement, the plan provider should make it simple to enroll and easy to use throughout the year. Where to find account information, benefit statements, annual notifications and other plan-related documents must be prominently displayed. Employees should also be able to effortlessly make investment and contribution changes, and information regarding how to take loans, if allowed by plan documents, should be easy to find.

Evaluating performance and returns

Look at the plan providers’ investment options. Do they offer certain types of mutual funds or other types of investments, and how many funds are available? When looking at investment options, check to see if certain types of funds are duplicated, such as several , or if some asset classes are missing, such as mid-cap funds.

A plan fiduciary, the person or entity who is responsible for the care of the plan and acts primarily for the benefit of participants, should check the performance of the funds offered at least once a year, although checking performance each quarter is better. The fiduciary needs to consider the economic and general market conditions when comparing fund performance and then compare the funds against their appropriate benchmark. For example, a fiduciary may compare the performance of a large-cap mutual fund versus the S&P 500.

Fiduciaries should look at current performance and check that against past performance for consistency. The people responsible for the plan should also review the fund’s prospectus and look for any management changes to ensure there have not been any major changes to the fund’s mission or investment targets.

Comparing fees and costs

Plan providers will charge fees to the employer and/or the employees to use the plan. Employers should look at both the initial set-up costs and the administrative costs to run the plan. Some plan providers may make it inexpensive to create a plan offering but charge more for ongoing maintenance. Also, consider the costs for employees to invest. If the costs are too high, employees may be discouraged to save.

Look at the fees the plan provider charges not only for set-up, maintenance and recordkeeping fees, but also for fees in the product offerings themselves. Those fees include sales charges (also known as loads or commissions) for buying or selling mutual funds, sub-transfer agency fees, which are payments to recordkeepers from mutual fund companies to service the account, and 12b-1 fees, which are fees paid by broker-dealers for fund distribution and marketing.

Does the plan provider offer low-cost options, such as index funds, or are they all actively managed funds, which will cost more? In the chart below, you can see just how much seemingly small differences in expense ratios can impact returns over time:

Another question to ask is what type of target-date funds or model portfolios are available to participants. Plans that offer automatic enrollment for employees often will default a participant’s investments into these types of funds. As your plan’s assets grow, consider negotiating lower fees. Many mutual funds will tier their fees depending on asset size.

Employer-sponsored 401(k) options

There are two types of 401(k) plans for employers to consider.

1. Traditional 401(k)

In a traditional 401(k) plan, employee contributions are made before income taxes are taken out. That lowers how much savers pay in income taxes now, as a result of deductions to their taxable income. Over time, that invested money grows tax-deferred. When that money is taken out during retirement, savers pay income taxes on the amount.

2. Roth 401(k)

In a Roth 401(k), the money employees contribute is taxed at current income tax rates. However, that invested money grows tax-free and, during retirement, any money taken out is not subject to income tax.

Tips for retirement investing

There are ways to encourage employees to save, such as offering to match workers’ contributions as an incentive, while financial education can explain to employees why it’s important to save for retirement. The best 401(k) providers have robust and appealing financial education and easy-to-use tools for employees to encourage them to save more. Short blog posts, visual aids, webinars and on-demand videos are among some of the ways plan providers can educate employees.

Some plan providers can send employees reminder messages about saving, such as nudges about increasing contributions at the beginning of the year, on their birthday or if they get a raise.

Making the right choice for your retirement savings

401(k) plans are considered a standard option for businesses, but they’re not the only option, and they may not be right for everyone. Particularly for small businesses, there are several options, such as SEP IRAs and SIMPLE IRAs, along with newer plans such as multiple employer plans, known as MEPs, and pooled employer plans, also called PEPs, which allow several employers to come together to offer retirement savings options in a single plan. Several states also offer state-run IRA plans to help small businesses offer retirement savings to their employees.

Methodology

To construct our list of the best 401(k) plans, we examined 10 of the most popular providers as determined by our team of expert editors. We excluded plans that only offer ETF-only, robo-advisor portfolios, so all the plans we included in our list offer traditional investment vehicles like exchange-traded and mutual funds.

Costs and features often vary by plan size or plan tier, so the best 401(k) plan is generally the one that aligns most closely with your unique business needs. We looked at a wide range of factors to determine the best 401(k) plan for various business types, including:

Initial set-up costs

Initial set-up costs have a big impact on your business, depending on its size, so we considered what it costs employers to begin offering a 401(k) plan.

Administrative costs

We also considered the cost for maintaining the plan, including recordkeeping and any fiduciary services. Employers and employees may both pay these fees.

Investment options

How many funds and other investments a 401(k) provider offers plays a key role in how your employees save for retirement.

Customer service availability

Employers and employees alike want to know that they can talk to someone about their 401(k) as needed. What time of day or evening can a participant reach out with questions about their plan?

Payroll integration & other features

We also took into account payroll integration and other features that make it easier to seamlessly add a 401(k) to your business. Other services, such as a health savings account and automatic enrollment, were also considered.