Why I waited to offer a 401(K) and why you don’t have to.
I have started over a dozen companies in the past decade. I’ve had successful exits from most of them and a few failures all while gaining a tremendous amount of experience along the way. At one point, I had about 15 different companies all going simultaneously which, in hind-sight was a terrible idea. I would often have people ask how I was able to keep track of everything from a food-truck (one of the failures) to a paint distribution company (still going). The secret was in finding the right employees to delegate the day to day management and administration to. I also learned that while I could find good employees while offering average pay and benefits, it was always much better to offer above average pay and above average benefits to get above average results. This leads me to what I feel is one of the top benefits, the 401(k).
Early on in my entrepreneurial endeavors, I had a few employees and was looking at offering a 401(k) mostly as a way for me to stash more than the IRA limits would allow into a retirement plan. I’ll admit, at the time I was more concerned with my own retirement than that of my employees. The best option at that time would have cost around $6,000 the first year and another $4,000 or so each year after that. Plus, there were all the hidden fees I wasn’t even aware of at the time. Overall, it was a lot of expense for a very sub-par 401(k) plan. I ended up abandoning the idea after realizing that there wasn’t anything affordable and decent for a small company like mine. Several years passed and demand for quality employees increased while the supply decreased. In order to compete I’d have to do better than my competition in terms of benefits and pay.
Offering better pay is easy; I simply log into my payroll providers app and change some numbers and suddenly the staff is a little happier but that isn’t very sustainable nor does it always make sense from a financial perspective. Benefits on the other hand, well, that’s a mixed bag. Sure, health benefits are a must but most employees have a hard time really seeing the value in that since, unless your company pays the full premium, the employee still shares some part of that benefit expense (their net pay decreases). I see health benefits more as a box that has to be checked in order to recruit and retain talent.
Now, the 401(k), that’s a game changer. Of all the benefits I offer employees, the 401(k) is the one they get most excited about. Maybe it’s because they don’t expect a small company like mine to offer one so it’s seen as a bonus but I think its more because this is the first time most of them have ever been offered that benefit.
So, how did I finally find the solution for offering a 401(k)? I had a friend in the finance industry, a 401(k) advisor at the time. He put me in touch with a few people and we looked around and found there wasn’t really a good option for a company of my size. My advisor and I discussed the current state of the industry and the aversion to small plans and figured we could do better. We assembled a small team and set out to do the impossible. We found some of the most innovative leaders in the 401k space and our little team created 401GO. After a year of hard-core development, I’m proud to say, one of my businesses was the first client to join the platform.
I’m now passively involved in a few of those early companies as my time is now primarily dedicated to 401GO but I still get excited, as I’m sure my employees do, when I log into that first 401(k) plan and see 100% participation rates and the collective amount our little company is saving for retirement. Also, I’m very confident that the full benefit offering of my company competes with businesses much larger than me and allows me to recruit and retain talent that was previously out of reach. I have been able to steal away several key employees that left the ‘security’ of a large corporate organization to come work at one of my scrappy start-ups due to a better overall offering from my company. Sure, it isn’t just the 401(k) benefits but they do play a key role and I’m confident the plan we offer is better than anything they’d find elsewhere.
When 401GO was started, the focus was always first on the employee. We learned that the way to do what is best for the employee is to also do what is best for the employer. Through automation and technology we were able to build the industries most efficient and automated 401(k) administration platform. This leads to cost savings and massive scalability. Suddenly, we could do plans for companies as small as a single employee (often just the employer). This tech-centric approach also makes it possible to offer access to the same premium fund selections and portfolios that the ‘big guys’ can offer while keeping costs low. In fact, while the industry average asset under management fee (AUM fee) is above 1.5%, for clients on the 401GO platform that fee is ZERO. For the employer, the fees are incredibly low too, at $9 per employee per month it is certainly the least costly benefit for a company to offer and well below industry average. As for hidden fees, start-up fees, monthly minimums, we’ve set those to ZERO as well.
401GO wasn’t created just for small businesses, as business owners ourselves, we recognized the importance of businesses advisers such as CPAs, benefit brokers, insurance providers, payroll providers and such. Because of this, our platform is designed to work with them and help them make their jobs easier. For example, integration with payroll systems makes the ongoing work of administering the 401(k) virtually disappear. For financial advisors and CPAs that want to offer their clients a 401(k), we handle all the paperwork, administration and compliance associated with a retirement plan so that adviser can focus on advising and taking care of their clients more pressing needs.
For me and my small company, the search for a 401(k) resulted in a “happily ever after” ending. It took over two years to build the solution we were looking for and it is still in constant refinement but the end goal has already been met. I’m proud to say, my small business now offers a 401(k) and best of all, its a plan that is more efficient, and ultimately more beneficial to employees than anything my biggest competitor offers. Now, all small businesses can offer this amazing benefit.