Employers Can Create Do-It-Yourself 401(k) Plans Online--Carefully

The Internet is making it easier than ever to offer your workers a 401(k) plan, perhaps the most popular employee benefit ever invented.

The Profit Sharing/401(k) Council of America estimates that 340,000 U.S. companies offered 401(k) plans last year, up from 175,000 five years earlier. The plans covered some 41 million workers, up from fewer than 28 million in 1994, and the assets in their accounts totaled $1.7 trillion, according to the PSCA.

There is probably no better way to hold on to your employees in this tight labor market and get them to identify their interests with your own than by offering a 401(k) plan.

The good news for employers is that the cost of setting up and administering a plan is not the barrier it once was, especially if you use the Internet as a resource. The bad news is that there remain so many punctilios in pension law that you might need the services of a professional pension consultant anyway.

In plain English, you must know what you’re doing to set up a 401(k) plan via the Internet. The Internal Revenue Service frowns on even innocent clerical errors committed in establishing and maintaining 401(k) programs, and when it disqualifies a 401(k) plan, everybody suffers.

The costs of hiring a professional pension consultant vary with the complexity of the plan they would set up and administer, of course. According to Sam Gilbert, president of United Plan Administrators Inc., a Westlake Village pension consulting firm, a simple plan for 10 employees might cost $500 to set up and several hundred dollars to administer every year.

A plan covering the same number of employees but reflecting variables in age and compensation can cost $2,000 to set up, plus administration fees of about $1,000 annually, Gilbert said.

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Seeking to bring these costs down, a handful of Internet entrepreneurs have joined the competition for the 401(k) dollar of small companies, offering do-it-yourself employers the chance to design and implement simple 401(k) plans at minimal cost, or even at no cost at all, and without the help of a professional pension consultant.

The biggest of the Internet competitors is Fidelity Investments (https://www.fidelitye401k.com), which sells a simple 401(k) plan for $750. Bookkeeping and trustee fees run to $1,750 per year, plus an annual fee of $20 per participant. The big mutual fund targets companies employing fewer than 100 people. Launched last October, it counts 400 employers so far and expects 500 by the end of the year, according to a spokeswoman.

ExpertPlan.com, of Trenton, N.J. (https://www.expertplan.com), charges a $750 setup fee plus an administrative fee of $30 per employee per year. It targets employers of as few as two or three people, according to a spokeswoman.

GoldK.com, based in Waltham, Mass., (https://www.goldk.com), distributes and administers simple 401(k) plans for free. Launched last summer, GoldK.com derives revenue from partnerships with 150 mutual funds such as the Janus and Templeton groups, through which plan participants may invest their savings.

A Bay Area start-up, Ez401k.com (https://www.ez401k.com), of Walnut Creek, charges a $401 setup fee plus $189 per month for administration. Launched in June 1999, the company targets the do-it-yourselfer with simple needs, according to Robert Steinhorn, its president and CEO.

“Our clients want to learn the ins and outs of 401(k) plans themselves,” Steinhorn said. “Our intent is to educate employers and make available plain-vanilla plans. We walk people through the design process, but we know that you can’t do everything on the Internet.”

Steinhorn makes a good point. Federal pension rules, for example, require that the signatures of plan beneficiaries and their spouses be recorded on paper, not electronically. In addition, although employers may store plan summaries and other documents in electronic form, they must make hard-copy documents available to employees who request them.

Many other rules govern what you can and cannot do with 401(k) plans--so many, in fact, that only the hardy do-it-yourselfer with very simple needs should go it alone, according to Gilbert of United Plan Administrators.

For example, the IRS might balk at even clerical errors if the employer doesn’t have a pension plan administrator, Gilbert said. And the employer with complex needs concerning loans against assets, breaks in service, pre-retirement death benefits or vesting schedules ought never to fly solo, he said.

“The do-it-yourself Web sites assume that you know the rules and that you believe that a plain-vanilla plan is best for you,” Gilbert said. “A pension consultant or actuary pays attention to those things that will keep the plan qualified.”

Next: The Internet’s newest resource for employers considering other kinds of retirement plans.

Recent Financing and Insurance columns are available at

https://www.latimes.com/finin. Juan Hovey can be reached at (805) 492-7909 or jhovey@gte.net.