Learn More About 401k Software
What is 401K Software?
401k administration software provides a simple solution for businesses to administer 401k retirement plans for employees. Offering a 401K plan to your employees can help increase employee satisfaction and retention. However, you can set your company up for penalties and audits if you don’t follow all the complex legal requirements set forth by the IRS and the Department of Labor (DOL). 401K software helps you design a 401K plan that meets your company goals while staying in compliance.
401K software allows employees to designate terms for their retirements plans, including contribution amounts, loans, and investment vehicles, such as mutual funds. 401K software allows employers to designate terms for matching, vesting, and profit sharing. It also acts as a go-between for the employer and the record keeper who holds the plan’s assets.
Employers must ensure that their 401K plans meet Employee Retirement Income Security Act of 1974 (ERISA) guidelines. Two of the most important ERISA guidelines are the the accountability of plan fiduciaries as well as rules and calculations for determining if the plan passes a non-discrimination test.
Anyone who makes decisions regarding the plan management or assets is considered a fiduciary. A fiduciary can be held personally liable if it is determined that the fiduciary did not act in the best interest of the plan participants. A company owner is automatically considered a fiduciary as soon as they decide to offer a 401K plan. 401K software helps navigate the complex IRS and DOL rules. Hiring a company with 3(38) and 3(21) fiduciary capabilities helps further limit the plan owners’ liability.
In an attempt to keep highly compensated employees (HCEs) and company owners from being the primary beneficiaries of 401K plans, the IRS designated a series of rules and annual tests to ensure a company’s plan does not discriminate against non-highly compensated employees (NHCEs). These rules are complex and can sneak up on a company at the end of the year, resulting in large fees and pay-backs. 401K software helps minimize the impact of these rules as well as handle the calculations and transactions in the case of a failed non-discrimination test. Alternately, a company can offer a Safe Harbor 401K. A safe harbor 401K has different guidelines and is not subject to non-discrimination tests.
401k Software Features & Capabilities
Integration with third party applications, including payroll providers
3(38) or 3(21) fiduciary status to deflect liability
Compliance testing for IRS nondiscrimination rules
Safe harbor plans
Loans and hardship withdrawals
Employee matching, vesting, and profit sharing
Tax filing and creation of report materials
These features are not offered by every vendor, but are helpful to have:
Training on changing IRS regulations
Reporting and benefits statements
Employee self-service portal
Dedicated account manager
Some vendors charge a flat rate fee per participant per month while others offer annual subscription fees. Monthly fees range from $4 - $8 per user per month and some include a $40 - $120 base fee per month in addition to the user fees. Employees may pay an investment portfolio fee to the vendor as well.