If you currently offer a 401(k) or are considering one, it might seem like the perfect fit to hire your payroll provider to service your plan.  The 401(k) is a powerful tool for you and your employees to save for retirement on a tax-advantaged basis, but you are also running a business.  If you are like most small business owners, the thought of spending time to understand and comply with complex IRS rules may make you think twice.  If you could avoid the headache by ‘flipping a switch’ to turn on the 401(k) option, why not flip it and move on?  While bundling the 401(k) with your payroll provider appears to be ‘easy’, it could turn into a nightmare down the road.  There are several important reasons you should look elsewhere, consider the following:

  • Payroll Integration – your payroll company will tell you that integrating payroll with the 401(k) is important for efficiency.  What they will not tell you is that payroll can be integrated with most 401(k) vendors, not just the payroll company itself. 
  • Service – most payroll providers do not offer a dedicated representative for your 401(k) plan and are unwilling to ‘hold your hand’ when an issue inevitably arises.   
  • Cost – your payroll company may give the impression that you are saving money by bundling the 401(k) with payroll, but you may end up paying more.  There are several ways that fees are charged within a 401(k), and many providers attempt to ‘hide’ the true cost by using higher cost investment options that share revenue. 
  • Expertise – other than salary deferrals and W-2 compensation, payroll has very little to do with 401(k) administration.  Salary deferrals and compensation reporting can often be automated, leaving little room for error; however, plan discrimination testing is not automated and there are many moving pieces that can affect the results. 
  • Plan Design – most payroll providers offer limited ‘plain vanilla’ options to simplify their operations and will not discuss the benefits of advanced designs including new comparability profit sharing or cash balance plans that can provide far greater tax benefits to you and your business.
  • Fiduciary Liability – 401(k) plans are complicated, and you have legal responsibilities to your plan and participants.  Payroll providers typically do not act as a Fiduciary, meaning if they mess something up, you are the one liable for their mistake. 

Working with a 401(k) specialist can not only save you time and headaches, it may also allow you to retire on your own terms.  Contact Kampstra Wealth Management today for a complimentary fee benchmarking report, plan design consultation, and investment option analysis at garrett@kampstra-wm.com or by calling 717-334-0097. 

 Securities offered through Triad Advisors, LLC, Member FINRA/SIPC.  Advisory services offered through Triad Hybrid Solutions, LLC, a registered investment advisor.  Kampstra Wealth Management and Triad Advisors, LLC are not affiliated.