Retirement Designs - 5 Common 401k Myths

5 Common 401k Myths

Have any of these come to mind during your 401k appraisal?

There are many myths about the benefits and costs of implementing a 401k. These myths evaluate a few of the most common misconceptions among employers. The most popular myth, among employers considering a new plan, is that only larger businesses can afford the benefit. A close second in the myth department is that employers who establish a 401k are responsible for matching employee contributions. The most dangerous myth, perhaps, is that a 401k is too complicated to set up or that employees would do better with an IRA on their own.

Myth #1

Myth #2

Myth #3

Myth #4

Myth #5

Myth # 1

401ks are affordable only by big businesses.

The Real Deal A 401k can be established for any size business, even sole-proprietors. A one-person business may consider a Single k plan. A 401k may be a suitable fit for any size company that wants to allow employees the option of saving higher amounts for retirement. This site details a turn-key 401k plan with a start-up fee of $250. The annual record keeping fee is $500 + $20 per participant. If selected, these fees can even be paid or shared by participants. After the tax credit, overall 401k record keeping costs are exceptionally cost efficient. The credit equals 50% of the cost to set up and administer the plan and educate employees about the plan, up to a maximum of $500 per year for each of the first three years of the plan. So, the hurdle of affordability can be resolved with the right program, and a clear understanding of expenses and credits associated with the plan.

Myth # 2

The employer must make a matching contribution in a 401k.

The Real Deal An employer may elect to match employee savings, yet this is not required. In fact, in a traditional 401k, many small businesses do not match employee savings. Although a match is generally appreciated by employees, the primary responsibility of saving for retirement falls in the hands of each employee.

Myth # 3

The employer is responsible for investment performance.

The Real Deal Under ERISA Section 404(c), the employer may be a fiduciary, and must then act in the sole interest of participants and beneficiaries; however, the employer is not responsible for the performance of underlying investments. ERISA also requires an employer (as plan sponsor) to diversify the plan’s investments in order to minimize the risk of large losses. Further, the employer should have a philosophy for investing, a process for reviewing existing investments, and should offer participants the opportunity to diversify and transfer among investment options at least quarterly.

Myth # 4

The employer must administer their 401k on their own.

The Real Deal Although there are certain responsibilities with any retirement benefits program, a 401k is relatively easy to administer. Most of the day-to-day responsibilities including account access, logging transactions, and record keeping are completed by Mid Atlantic Trust Company (the record keeper). Additionally, the record keeper completes your participant and employer statements, year end testing and 5500 Tax Form preparation. A Registered Representative of MML Investor Services, Inc. provides continued employee investment education and asset allocation support. After hosting education meetings, and (commonly) delegating the payroll deferral submissions, an employer has limited administrative responsibilities.

Qualified retirement plans have special testing requirements, limitations, and employer responsibilities - it is important to speak with a CPA, attorney or other professional representative in reviewing plan rules.
The record keeper will request that the Trustee obtain a surety bond and that this bond be maintained according to coverage rules within a qualified plan. A surety bond may be obtained from your personal or business casualty insurance provider.

Myth # 5

A 401k is complicated to set up, and IRAs are better for employees.

The Real Deal Setting up a 401k is probably faster and easier than you would expect. In many cases we can have your plan up and running in just one day. While it is best to leave at least a few weeks of lead time for implementation, there is little time commitment on the part of the employer. An IRA may be deductible, depending upon an employee’s tax filing status, yet it is not a complete solution. The systematic savings mechanism of a 401k promotes steady accumulation of employee retirement capital over many years. Of course, the modern notion of "retirement" has undergone a huge demographic shift in the past several years. Resulting from increased life expectancy and retirement income shortfalls throughout the social security system, the 401k is still viewed as the most dependable retirement tool.

Important Information

All administrative and record keeping services are offered by PB&H Benefits, LLC. The custodian trust company is Mid Atlantic Trust Company (MATC), providing a state-of-the art trading and reporting system that integrates record keeping, trust accounting, and straight-through processing with access to over 16,000 mutual funds in underlying accounts. All investments are offered by Registered Representatives of MML Investors Services, LLC, Securities are distributed through MML Investors Services, LLC, Member, SIPC. Supervisory Office: 2 Bala Plaza Suite 901 Bala Cynwyd, PA 19004 Tel (610) 660 9922. Investment education is provided by Registered Representatives of MML Investors Services, LLC. Note that our role as financial professionals, with respect to the 401k plan, is not to provide investment advice. We offer employee education including fund information and portfolio design using models that match the employee's intended level of risk and investment goals. In no way do we endorse any recommendations, advice, or opinions contained in Information developed by third party providers and mentioned in this website. We merely provide access to such information as a convenience to help you consider your design and investment selections. Any investment decisions you make are based solely upon your evaluation of financial circumstances and investment objectives, in the best interests of your Plan. Mutual Funds are sold by prospectus. You should carefully consider a fund’s investment objectives, charges, expenses, and risks before investing. The fund's prospectus, which can be obtained online (or hard copy) by calling your Registered Representative, contains this information and other facts about the fund. Please read the prospectus carefully before you invest or send money. We do not offer tax planning or legal advice. Please consult your CPA or attorney for specific tax implications and legal matters pertaining to your Plan.

Registered Representative Information

John M. Novak is a Registered Representative of and offers securities and investment advisory services through MML Investors Services, LLC, Member, SIPC. Supervisory Office:
First Financial Group
2 Bala Plaza Suite 901
Bala Cynwyd, PA 19004
Tel (610) 766 3014 Administrative and record keeping services offered by PB&H Benefits, LLC, and custodian services offered by Mid Atlantic Trust Company are not sponsored or offered through First Financial Group or MML Investors Services, LLC. PB&H and MATC are not affiliates or subsidiaries of MML Investors Services, LLC.

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