Small company 401k

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209south
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Small company 401k

Post by 209south » Sun Jun 11, 2017 4:36 pm

I am joining a very small company as CEO...a publicly-listed mining company with a market cap ~$25mm...currently there are zero full-time employees - all technical and administrative roles are contracted out...that will change over time but it is possible that I will be the only 'employee' for 2017, and there won't even be very many in 2018...I own <1% of the company so this is by no means a self-employed situation...I do want to set up a 401k or similar program for myself (and any other employees who join in the future)...any advice as to my options?

clipson
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Re: Small company 401k

Post by clipson » Sun Jun 11, 2017 5:30 pm

Any number of insurance companies and banks can help you set up a 401(k) plan, and they are likely better suited to smaller plans than the Fidelity's and Vanguard's of the world. I believe PNC Bank offers them. Edelman Financial Services and Wells Fargo are a couple other names that come to mind. Just look up "[institution name] employer services".

209south
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Re: Small company 401k

Post by 209south » Sun Jun 11, 2017 6:42 pm

Thanks, clipson, that is useful advice - I would not have thought of such organizations but will do the research!

gilgamesh
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Re: Small company 401k

Post by gilgamesh » Sun Jun 11, 2017 6:54 pm

It sounds like as a 1% owner and CEO you are planning to set up a 401k for the company. You will be a participant. What is the purpose for the 401K? Is it solely because you want to maximize your tax shelter? Do you want to set up to attract good employees? Is it for the sole purpose to be a tax shelter for majority owners.

There are complex 401k rules based on ownership. You need to sort this out to your individual situation.

There are different types of 401k. Safe harbor, profit share and defined benefits option too.

Then when it comes to profit share, there are different profit share methodology. The purpose of 401k has to be merged with particular ownership, highly compensated employees, regular employee informations (age, wages, length of employment etc) and evaluated.

Such complex analysis for even a company of your size may require a proper Fiduciary with particular ERISA qualifications to run a study.

If no such study is required, like my case, consider Emoloyee Fiduciary. They will do cookie cutter study of various profit share options and to compliance testing. I am looking at guideline.com too, but very new.

You need to know more about what exactly are you trying to achieve?

209south
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Re: Small company 401k

Post by 209south » Sun Jun 11, 2017 7:04 pm

Thanks, gilgamesh. I am still thinking this through, and frankly I haven't even finished my contract negotiations yet - the idea of a 401k plan came up in the contract review, and the Board members behind the company are comfortable with something being set up, all subject to the appropriate rules, etc. The plan would certainly be available to all future employees, though there is no plan to offer any matching (I've been in 401k plans for 30 years and am still waiting for my first match!) One thing I may do is negotiate that part of my salary effectively becomes the employer contribution to my 401k...as a 57 year-old I believe the company I can jointly put in a total of $60k for 2016...$20 from me and $40 from the company...so if my salary is to be $250k perhaps I receive $210k cash and a $40k 401k contribution...does that make sense? Obviously would offer similar flexibility to future employees if there is interest...and obviously will confirm all details with the provider.

MotoTrojan
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Re: Small company 401k

Post by MotoTrojan » Sun Jun 11, 2017 7:07 pm

Checkout Employee Fiduciary. They cater to smaller companies and are ridiculously cheap from what I've seen. Offer low cost Vanguard and similar funds too. I plan to propose them to my small startups founders when the time is right.

Looks to be on the order of $1500/yr + 8 basis points.

physiorol
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Re: Small company 401k

Post by physiorol » Sun Jun 11, 2017 7:28 pm

1+ for employee fiduciary

gilgamesh
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Re: Small company 401k

Post by gilgamesh » Sun Jun 11, 2017 7:31 pm

I think my 401k safe harbor is $18k max and $6k after age 50. I think It'll be $60k with profit share. I would think your contribution will be $18k plus $6k. Employee share of $36k. But, I'm not 100% sure about these though...there are complex rules more complicated than just the limits...so, as I only know partial info., don't want to mislead you.

ERISA Stone
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Re: Small company 401k

Post by ERISA Stone » Sun Jun 11, 2017 10:43 pm

in this day and age, I don't know why any firm would use an insurance company unless maybe they provide something unique? IMO they are really close to being a rip off in the 401k industry.
Last edited by ERISA Stone on Mon Jun 12, 2017 9:29 am, edited 1 time in total.

Spirit Rider
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Re: Small company 401k

Post by Spirit Rider » Sun Jun 11, 2017 11:14 pm

I agree with ERISA Stone, the last places I would go for a 401k would be a an Insurance company or a bank. The best place for a small company 401k would be a cost effective third part administrator (TPA) using a low expense custodian. One has been identified earlier in this thread and there are many others including local small businesses offering such services.

Raabe34
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Re: Small company 401k

Post by Raabe34 » Mon Jun 12, 2017 8:58 am

Depending on just what everyone is trying to accomplish you might be able to get it done with a simple. It has lower limits but no cost to administer. That can be setup direct with Vanguard.

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BolderBoy
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Re: Small company 401k

Post by BolderBoy » Mon Jun 12, 2017 9:00 am

Spirit Rider wrote:I agree with ERISA Stone, the last places I would go for a 401k would be a an Insurance company or a bank. The best place for a small company 401k would be a cost effective third part administrator (TPA) using a low expense custodian. One has been identified earlier in this thread and there are many others including local small businesses offering such services.
Agree with Spirit Rider and ERISA Stone.

Also, doesn't Vanguard offer small business 401k plans again?
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

209south
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Re: Small company 401k

Post by 209south » Mon Jun 12, 2017 9:13 am

Employee Fiduciary appears to charge as follows:
- One-time set up fee - $500
- Annual admin fees - $1,500 (for up to 30 employees) + 0.08% of plan assets
I will call Vanguard later this week to see how their pricing compares, but I really appreciate the heads-up re. Employee Fiduciary...those fees seem very fair in the circumstances, particularly as their plans incorporate low-cost Vanguard funds with no additional fee markup beyond the annual maintenance fees.

ERISA Stone
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Re: Small company 401k

Post by ERISA Stone » Mon Jun 12, 2017 9:29 am

209south wrote:Employee Fiduciary appears to charge as follows:
- One-time set up fee - $500
- Annual admin fees - $1,500 (for up to 30 employees) + 0.08% of plan assets
I will call Vanguard later this week to see how their pricing compares, but I really appreciate the heads-up re. Employee Fiduciary...those fees seem very fair in the circumstances, particularly as their plans incorporate low-cost Vanguard funds with no additional fee markup beyond the annual maintenance fees.
I have used Employee Fiduciary since the beginning of the year. When I checked with Vanguard in December, their charge was $3475 for recordkeeping and administration if you have less than 16 participants. They charge $75/participant over 15.

Spirit Rider
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Re: Small company 401k

Post by Spirit Rider » Mon Jun 12, 2017 10:27 am

BolderBoy wrote:Also, doesn't Vanguard offer small business 401k plans again?
To clarify Vanguard's small business 401k plan is really co-marketed with Ascensus as the TPA for document, record keeping and administrative services. Technically, it is no more a Vanguard 401k than an Employee Fiduciary plan with all Vanguard Funds.

Like many other threads where people say they have a Fidelity or Vanguard 401k plan at their employer, the financial institution is very often, just the custodian of the funds.

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Hub
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Re: Small company 401k

Post by Hub » Mon Jun 12, 2017 12:04 pm

Interesting thread. I'm in a position to influence the next steps for my 100 employee company's 401k plan. I'll look at some of these options as well.

gilgamesh
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Re: Small company 401k

Post by gilgamesh » Mon Jun 12, 2017 3:37 pm

I mentioned Emplyee Fiduciary and also the new guideline.com. The latter has even lower fees.

$500 set up. min $40/month or $8 per participant, and 3 basis point AUM.

JGoneRiding
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Re: Small company 401k

Post by JGoneRiding » Mon Jun 12, 2017 3:49 pm

For such a small company you might conside simple Ira. I believe they are easier to administer and less "responsibility" to the company

209south
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Re: Small company 401k

Post by 209south » Mon Jun 12, 2017 3:58 pm

Simple IRA has far lower contribution limits, I believe...yes, gilgamesh your suggestion of Employee Fiduciary turns out to be a good one, and I will look into guideline.com as well!

beachtech
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Re: Small company 401k

Post by beachtech » Mon Jun 12, 2017 6:20 pm

Take a look at https://www.guideline.com/ -- have been using for my <5 person company. So far so good.

$500 one-time setup. $40/month admin fee if <= 5 employees; otherwise $8/mo/employee. Uses Vanguard mutual funds underneath with no added expense ratio. I believe my blended ER is 0.06%, not including the fixed $40/month.

Talk to your accountant, but I believe max employer contribution is 25% (not matching, just unconditional employer contribution). If you have space left over, you can add your employee deferral as Trad or Roth 401k.

gilgamesh
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Re: Small company 401k

Post by gilgamesh » Mon Jun 12, 2017 7:08 pm

beachtech wrote:Take a look at https://www.guideline.com/ -- have been using for my <5 person company. So far so good.

$500 one-time setup. $40/month admin fee if <= 5 employees; otherwise $8/mo/employee. Uses Vanguard mutual funds underneath with no added expense ratio. I believe my blended ER is 0.06%, not including the fixed $40/month.

Talk to your accountant, but I believe max employer contribution is 25% (not matching, just unconditional employer contribution). If you have space left over, you can add your employee deferral as Trad or Roth 401k.
Wow! Finally someone actually using guideline.com, I am leaning towards them for my 401k safe harbor for my small company of 7 employees.

ERISA Stone
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Re: Small company 401k

Post by ERISA Stone » Mon Jun 12, 2017 7:30 pm

gilgamesh wrote:
beachtech wrote:Take a look at https://www.guideline.com/ -- have been using for my <5 person company. So far so good.

$500 one-time setup. $40/month admin fee if <= 5 employees; otherwise $8/mo/employee. Uses Vanguard mutual funds underneath with no added expense ratio. I believe my blended ER is 0.06%, not including the fixed $40/month.

Talk to your accountant, but I believe max employer contribution is 25% (not matching, just unconditional employer contribution). If you have space left over, you can add your employee deferral as Trad or Roth 401k.
Wow! Finally someone actually using guideline.com, I am leaning towards them for my 401k safe harbor for my small company of 7 employees.
I mentioned last time guideline came up but I believe they don't allow the new comparability profit sharing allocation formula. This was an non starter for me. They seem like they are a solid outfit. Just make sure you know their limitations as it relates to you ur needs.

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gasdoc
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Re: Small company 401k

Post by gasdoc » Mon Jun 12, 2017 7:40 pm

I don't believe you mentioned your age or income. If you are in your 50's, have a higher income, and are part of a small company, you might also look into providing a defined benefit plan, to really increase you contributions.

gasdoc

209south
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Re: Small company 401k

Post by 209south » Mon Jun 12, 2017 7:58 pm

gasdoc, I hadn't thought of that...how would that work and who should I speak with re. administration? I am 57 btw and intend to be in this job for 2-4 years, by which time we hope to have sold the company...maximizing tax shelter and creating some sort of annuity/pension are big objectives.

ERISAstone what is this 'comparability profit sharing allocation formula'?

ERISA Stone
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Re: Small company 401k

Post by ERISA Stone » Mon Jun 12, 2017 8:23 pm

209south wrote:gasdoc, I hadn't thought of that...how would that work and who should I speak with re. administration? I am 57 btw and intend to be in this job for 2-4 years, by which time we hope to have sold the company...maximizing tax shelter and creating some sort of annuity/pension are big objectives.

ERISAstone what is this 'comparability profit sharing allocation formula'?
The new comparability profit sharing allocation method basically allows "permitted discrimination" as long as you pass nondiscrimination testing. It provides the potential to give the Highly Compensated Employees (HCEs) a higher contribution rate than the non-Highly Compensated Employees (NHCEs). Theoretically, you could give HCEs a 20% profit sharing contribution while giving the NHCEs 5%, again assuming testing passes.

You might be a good candidate since you are closer to retirement age. The new comparability formula tests the participant's benefit at retirement. The theory behind the formula is older employees don't have as long to accrue earnings so they should have the ability to receive a higher contribution than a younger employee, for example.

Spirit Rider
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Re: Small company 401k

Post by Spirit Rider » Mon Jun 12, 2017 11:02 pm

beachtech wrote:Talk to your accountant, but I believe max employer contribution is 25% (not matching, just unconditional employer contribution). If you have space left over, you can add your employee deferral as Trad or Roth 401k.
The 25% limit for employer contributions is inclusive of all such contributions including both employer match and non-elective employer contributions.

beachtech
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Re: Small company 401k

Post by beachtech » Tue Jun 13, 2017 12:15 am

Spirit Rider wrote: The 25% limit for employer contributions is inclusive of all such contributions including both employer match and non-elective employer contributions.
Yes, that is my understanding as well. We opted for the max 25% in non-elective employer contributions. Zero match. This qualified as a safe harbor choice.

Individual employees can still opt whether or not to do employee contributions as paycheck deductions, anywhere between $0 and $18K/yr (assuming there's room left under the grand-total $54K/yr limit employer+employee). This makes it a fair "equal cost to the company" situation for all employees, while giving individuals some flexibility to take a bit more in take-home pay if they personally need it at the moment.

I believe that's the most generous 401k plan you could possibly imagine! :D

This choice worked for us as all employees were HCEs, all wanted to take advantage of big tax savings (particularly in high tax state), and we have no plans to hire additional employees in the foreseeable future. FWIW, I had no problems setting this plan up with Guideline (although I got the feeling that I knew more about the 25% rule than they did! I think they would have let me go higher :twisted: ) and it plugged straight into our payroll system as well.

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gasdoc
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Re: Small company 401k

Post by gasdoc » Tue Jun 13, 2017 9:48 am

209south,
The plan must generally be kept in place for five years minimum to stay qualified by the IRS, but I wouldn't think that would be a problem once you sold the company. I am self employed, and use(d) a third party administrator to draw up and administer my plan- which allows me to contribute about $200,000 per year. The name of my plan is called "One Person Plus," but the parent company is Dedicated Defined Benefit Services LLC, out of Glendale, CA. I am not in California, but everything has been done by phone, emai and snail mail. They have people to answer your questions, and a decent web page for information. There are other companies, mostly insurance companies, which I try to avoid.

gasdoc

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gasdoc
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Re: Small company 401k

Post by gasdoc » Tue Jun 13, 2017 9:51 am

209south wrote:gasdoc, I hadn't thought of that...how would that work and who should I speak with re. administration? I am 57 btw and intend to be in this job for 2-4 years, by which time we hope to have sold the company...maximizing tax shelter and creating some sort of annuity/pension are big objectives.

ERISAstone what is this 'comparability profit sharing allocation formula'?
209south,
I wanted to add that you are the perfect age for a defined benefit plan.

gasdoc

209south
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Re: Small company 401k

Post by 209south » Tue Jun 13, 2017 3:12 pm

Just back online - gasdoc, that is very helpful and I'm now registered with the folks at Dedicated Defined Benefit Services to learn more - I agree this seems like a particularly attractive opportunity for someone at my stage.

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gasdoc
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Re: Small company 401k

Post by gasdoc » Tue Jun 13, 2017 7:17 pm

209south wrote:Just back online - gasdoc, that is very helpful and I'm now registered with the folks at Dedicated Defined Benefit Services to learn more - I agree this seems like a particularly attractive opportunity for someone at my stage.
Glad to help. Hope it works out.

gasdoc

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