401(k) Compensation

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Apr 7, 2010 6:48 pm

Rookie question, what is the typical payout on small 401(k) plans?  I have a few leads from current clients with under 20 employees, but not sure how it works or if it is worth the time.  To clarify, I am talking 401(k) plans, not SIMPLE IRAs/401(k) with a fund family.  Do you typically get paid a percentage of assets on start-up plans?  How about takeovers?

Apr 8, 2010 7:32 am

Normally, you get paid from the investments of the assets. Most common is Mutual Funds. If the Plan invests in Mutual Funds, you get paid by the Fund. Same as for an individual except for the fact that the Plan usually has an omnibus account that contains all of the assets of the Participants in that particular fund.

Plans also invest in Group Annuity contracts with Insurance Comanies (no trustee requirement) that have GIC and SIA components.  They have their own payouts set by the Ins Co.

Larger plans may invest in any combinations of investments that you can think of including real estate and Company Stock and these days a lot of plans have a self directed component which is basically a brokerage account option for each participant in the plan.

Watch out for landmines. Biggest one is "Are you a fiduciary with respect to the Plan's assets?" If you are, what kind are you? An ERISA 3(31) limited or full scope fiduciary, an ERISA 3(38) full scope, or are you a non-fiduciary ? Until you can answer those questions you are treading on thin ice. Serendipitously, InvestmentNews has a good article on ERISA fiduciaries today.

Rememebr that in the small plan market, these things are sold as a package, Investments and Admin together. Best advice I can give you is to find a reputable TPA to do the admin work (unless your firm has an internal Admin group or an existing TPA relationship) and educate the heck out of yourself with respect to Qualified Plans.  With regs by the SEC and DOL as well as the IRS, it's another area of expertise that's about as byzantine as you can get.