Over the past few years, under the pretext of making your life easier, some of the largest payroll providers have been aggressively obtaining the administration portion of 401(k) plans.
We’ve had a number of pharmacy owners tell us, “I already use them for payroll, why not use them for a 401(k)? Plenty of people do it.”
It sounds so simple. And it’s true; plenty of people do use these companies to administer their payroll and 401(k). In fact, a representative from one of these companies boasted they have over 70,000 401(k) plans… like it’s a good thing!
So I did a bit of digging. A simple Internet search on problems with
401(k) administration by large payroll providers is very eye opening. While I’ve made a living exposing the large fees, hidden expenses, and poor service provided by these companies, it wasn’t until just recently that I realized just how much it is costing independent community pharmacy owners.
The truth of the matter is, there is not much money to be made offering a payroll service alone. So, what do these large payroll companies do? They hire hundreds and hundreds of aggressive sales people (often unlicensed) to convince business owners and pharmacy owners alike to move their 401(k) to them – all in the name of “convenience”. By doing so, this allows these payroll companies to make money on the back-end of their clients.
You may now be asking, “Is this a bad thing? I mean, this is America, right?”
No, in and of itself, convenience is not a bad thing. The bad part comes when fees and expenses in these plans are high and hidden from you.
Pros and Cons for using one of the large payroll providers for 401(k) administrations:
- Deferral and employer contributions are made to each employee.
- Services are consolidated under a single third party
Well, that sums up all the pros.
Cons:
- Hidden Expenses
- Cookie-cutter plans
- Customer Service
- Annually filing of 5500
- More liability on owner/plan trustee
Fiduciary responsibility means the plan trustee must act in the best interest of their employees, including investment options. Since these high expense funds are not acting in the best interest of investors, the liability falls on the pharmacy owner.
I know this information is a bit harsh and I am sure many pharmacy owners have had no issues with these large payroll providers. The point I am looking to make is simply this: It is critical to understand the fees, expenses, and costs associated with your 401(k) – regardless of who you have administering it. For your sake, and the sake of your employees’, you must take the time to learn.
At Pharmacy401k we ensure each independent pharmacy owner has an optimal plan; one that’s specifically designed to achieve their retirement goals and their business goals… one that is just right for them. We start by providing complimentary plan analysis and fee benchmarking at no cost. If you want the best plan for you, email tyler@waypointus.com.