SMB 401k Plan Construction Questions

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SMB 401k Plan Construction Questions

Post by 67vwbug » Wed Jul 25, 2018 9:31 pm

Hello fellow Bogleheads,

Long story short, I work for a SMB with a poor 401k plan and I have been given the green light by the CEO to explore other options and make a recommendation. In my research I read a number of threads on the forum about lobbying for a new 401k, setting up a new 401k, 401k plan construction, etc. I am starting to come in for a landing and I have some questions just to make sure I'm on the right track.

Current 401k Plan
(NOTE: I'm going to keep details about our current plan vague so as to not potentially dox myself and also to not throw mud on our current provider.)
"Safe Harbor" plan with a large, often criticized provider
Over 100 Investment Options, most of which are actively managed funds with high ERs
"Fiduciary Warranty" provided by current record keeper due to the variety of investment options being offered

Costs to Plan Sponsor (Non-asset based fees)
Annual hard dollar cost to plan sponsor consisting of base fee, document maintenance, and per participant fee of roughly .07% of assets (when represented as a % of assets)

Costs to Participants (Asset based fees)
.36% paid to provider for record keeping
.05% paid to a Third Party Administrator (TPA)
.25% paid to a Financial Adviser (NOTE: FA not acting in 3(21) or 3(38) fiduciary capacity)


The financial adviser provided me with an updated proposal from our current provider (reduced asset based record keeping fee from .36% to .24%) and proposals from Fidelity, Empower, and T. Rowe Price. I also went out for proposals myself from Vanguard/Ascensus and Employee Fiduciary.

Vanguard/Ascensus and EF were the most cost efficient (within $500 of each other in favor of Vanguard/Ascensus), and I am presently leaning towards going with Vanguard/Ascensus since EF has a .08% asset based fee.


1. Reviews of Vanguard/Ascensus seem decent enough on this forum. Are there any current concerns that I should be aware of with Vanguard/Ascensus, either during the 401k transition process or once we've transitioned?

2. To my knowledge our current TPA is responsible for Safe Harbor compliance and our Form 5500. I am considering recommending that we drop our current TPA during this process and letting Vanguard/Ascensus handle these duties. This change would rid the plan of the .05% asset based fee paid to the TPA and save the plan about $1500/yr (at current asset and participant levels). Any concerns with Vanguard/Ascensus being able to perform these duties for us?

3. I am also heavily considering recommending that we drop our current financial adviser during this process. To my knowledge their current responsibilities include advising on investments, plan reviews, vendor relationships, compliance, and advising on notices (Safe Harbor, QDIA, 404(a) Participant fee). I feel .25% is extremely high for these services, especially since they are not acting in a 3(21) or 3(38) fiduciary capacity (and thereby not limiting any of the plan fiduciary's liability) and also in light of how cost inefficient our current plan is. Is there anything I am possibly overlooking in this regard?

4. Now the big question: plan fund selection and fiduciary liability. One of the company's owners is the plan fiduciary and I want to ensure my recommendations are prudent both to him and to the plan participants. I am aware of Mesirow Financial and their 3(21) (.03%) and 3(38) (.06%) offerings to shift some of the fiduciary liability, but I am wondering if we could select the plan funds ourselves and avoid that cost. I have seen sample lineups from EF, Vanguard/Ascensus, and Mesirow, and also reviewed investment options in the Exxon 401k, IBM 401k, and the Thrift Savings Plan (TSP). I have also reviewed the Mercer document on Mitigating Fiduciary Risk and the Vanguard best practices document on Constructing a Defined Contribution Investment Lineup. With the ERISA 404(c) requirements and the previous plans and documents in mind, it seems possible to me to offer a selection of Vanguard funds that mimic the TSP and consists, at minimum, of Target-Date Funds (Income, 2015...2065) and Core Index Funds (Total Stock Market, Total Bond Market, Total International Stock Market, Money Market). These fund offerings seem simple, prudent, low cost, diversified, and appear to meet the ERISA 404(c) requirements. Is there anything I am overlooking? This seems almost too easy and I want to be careful here as I don't want to expose the fiduciary (owner) to any increased liability.

5. Is there anything else I may be neglecting in this process? I will admit that this is my first time through a process like this and it is stretching me some. Are the any glaring oversights in my analysis or conclusions?

Thanks in advance. :)

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