Investing Basics

Nine questions to ask a prospective 401(k)/403(b) provider

Whether you want to begin offering 401(k) or 403(b) benefits, or you are thinking about switching plan providers, these nine questions can help you choose a provider wisely.

Note: the list below is not exhaustive. Just Futures encourages you to have conversations with multiple providers for a thorough comparison.

1. Are you a fiduciary?

When a provider is a fiduciary, they are legally obligated to put their clients’ financial best interest first. If a provider is not a fiduciary, they can act in their own best interest, for instance, by charging high fees to maximize profit.

Keep in mind the various types of fiduciary roles:

Plan sponsor: The employer is the plan sponsor. As such, you must act in your employees’ best interest. Doing due diligence by using these questions to evaluate potential plan providers is one example of upholding your fiduciary responsibility.
3(38) investment manager: This kind of fiduciary takes direct responsibility for building, monitoring, and maintaining the plan’s fund offerings. Many employers delegate this responsibility to a plan provider. Just Futures is an example of a 3(38) fiduciary.
3(21) co-fiduciary: Some employers choose to keep direct responsibility for choosing the plan’s investment options. In this case, they can hire a 3(21) co-fiduciary to recommend investment funds. But you make the final decisions in building, monitoring, and maintaining the fund offerings.
3(16) plan administrator: Many employers delegate this fiduciary role to a plan administrator. One important annual task the administrator typically completes is preparing and filing the employer’s Form 5500. Employers use this form to demonstrate that their plan meets IRS compliance requirements. Plan administrators also take responsibility for recordkeeping and custodial requirements. Just Futures partners with Vestwell, who is a 3(16) fiduciary that files Form 5500 for employers.

2. What are your fees for the employer, AND what fees will employees pay?

While providers may use various terms to describe fees, managing a plan usually involves three main kinds of fees: administration fees, investment management fees, and fund fees. You, the employer, will pay some of these fees. Your participating staff will also pay some of the fees. If you are comparing multiple providers, try to compare all the fees and clarify what cost burden employees will have to carry. Take care to standardize the terms. For example, while most providers quote investment management fees as an annual cost, some providers may appear to have lower fees by quoting as a monthly cost.

Administration fees: Sometimes bundled and sometimes separated into plan administration, recordkeeping, and custodial fees, these costs go to the plan administrator and/or recordkeeper. Depending on the provider, it can be set as a flat fee, a percentage of assets in the plan, or some combination. It can include a base fee and/or a fee per participating employee. Some providers charge these fees to the employer, some providers charge them to the employees (aka the “plan”), or sometimes you can choose.
Investment management fees: This cost goes to the firm managing your staff’s investments. It is typically a percentage of assets in the plan. Not every provider charges an investment management fee.
Fund fees: For each fund in which an eligible employee invests, this cost goes to the company that manages the fund. It pays for costs associated with running a fund, including accountants, legal professionals, fund managers, etc. The fund fee varies per fund. Fund managers typically charge this fee as a percentage of fund assets, which your staff can find in the fund prospectus. Unlike administration and investment management fees, fund fees do not appear on a retirement account statement or invoice.
Some funds charge 12b-1 fees. Fund managers use these fees to pay for the costs of marketing and selling the funds. For example, 12b-1 fees can pay for commissions that individuals or companies, e.g., your advisor, broker, third party administrator (TPA), or recordkeeper, receive for selling funds to your 401(k)/403(b) plan. Just Futures does not offer any funds that charge 12b-1 fees.

Regarding passing fees onto your employees: Employees always pay the fund fees. But for administrative and investment management fees, some plan providers, like Just Futures, allow you to choose whether the organization pays on behalf of your employees or to require the employees to pay. If your organization’s budget allows, Just Futures recommends that the employer pay. This way, more of your staff’s money has a chance to grow for them before they retire. If you pass fees on to your staff, the administrator automatically deducts the fees from their accounts.

Some employers ask (wisely), what is a reasonable amount to pay for fees? Answering this question can get complicated, because plan providers vary in their offerings. However, industry standards can help you gauge whether fees are reasonable. 2023 data from the 401(k) Averages Book provides industry averages of costs as a percentage of total assets in the plan.

Administration fee: industry average is 1.75%.*
Investment management fee: industry average is 0.64%.*
Fund fee: industry average is 0.42%.*

Once you have assessed total fees, you can assess how much of those fees your staff will pay. Based on industry averages, Just Futures’ all-in fees may be up to 25% lower than the industry average.**

Other miscellaneous fees to consider include:

Setup fee
Conversion fee
Plan amendment
Plan termination
Hardship withdrawal
Rollover
Withdrawal (“distribution”)

3. What kind of educational support do you provide to staff?

While some plan providers, like Just Futures, offer dedicated support, others only offer automated service, for example, a 1-800 number or a website chat feature. Further, some providers offer an educational session as part of onboarding to make sure workers understand how to use the plan. For example, such training might explain the difference between pre-tax and Roth accounts, the power of compounding returns, and how to make changes to their investment settings.

Among the providers who offer more extensive support, consider your staff’s needs. The financial services industry has a long history of exploiting Black people. Just Futures believes that this fact could lead Black people to choose risk-averse retirement investing strategies.*** This conservative approach could lead Black people to end up with less money in retirement than their white peers, even if they invest the same amount from their paycheck.

To help all workers invest for retirement in a way that suits their financial situation, you can choose a plan provider that has advisors whom your staff can trust. Just Futures recommends asking a potential provider if they employ advisors of color, who may be better able to relate to your staff. Just Futures clients have told our staff that talking through retirement investing with our diverse support team has helped them understand finance in ways they previously could not. They’ve described our training as, “Better than any info I've gotten from our last company,” and said, “Wow, I finally understand retirement.”

4. What types of funds and investment strategies do you offer?

Consider choosing a provider that allows your staff to choose among various types of investment strategies. Three common strategy categories are age-based, risk-based, and customized.

Age-based (“target date”): An age-based strategy, often called a “target date fund,” is a “set it and forget it” option based on an employee’s anticipated retirement year. As a worker gets closer to retirement age, investment managers shift the investments to make the portfolio gradually less risky, without the worker taking any action. More than 86% of retirement plans use target date funds as the default investment option because of the relative ease of use for the everyday saver.
Risk-based: This strategy allows staff to invest in a way that achieves the risk level they desire. For example, someone could set their portfolio to be 80% stocks (more risky) and 20% bonds (less risky), or 70% stocks and 30% bonds, etc. With this investment strategy option, a worker’s risk allocation only changes if they go into their account to update their preference themselves.
Customized: Here, your staff can hand pick which funds – from among the plan provider’s fund lineup – they want to include in their portfolio, and how much of their money they want to go into each of their preferred funds. For example, they may want to invest in a low cost fund, a fund managed by a particular person or company, or a values-aligned fund.
Data indicates that younger staff want to invest in such funds. For example, a 2023 Nuveen study found that, “91% of millennial and Gen Z investors agree that having RI [responsible investing] options on their retirement menus would make them more loyal to their company.” Some plan providers offer “green,” “ESG,” or “responsible” funds. But these labels are not always meaningful. They might be investing in the same companies as more mainstream funds. This kind of misrepresentation is called “greenwashing.” Further, these values aligned funds sometimes carry higher than average fees.
At Just Futures, rather than treating values as a niche category, we take a different approach. As a fiduciary, we have a legal and ethical requirement to put workers’ financial interests first. So, to choose our fund lineup, we first screen according to rigorous standards of traditional fund metrics, for example, cost, risk-adjusted return, and asset class consistency. Once we have identified top performing funds according to our fiduciary responsibility, we then screen those funds using 75+ values metrics. Furthermore, a worker who wanted to invest even more strongly according to social justice values could use Just Futures’ custom investing option to invest only in funds from asset managers that boldly commit to facilitating just, systemic change, for example, the Adasina Social Justice All Cap Global ETF (JSTC).

To help ensure you are choosing a plan provider that serves your staff’s best interests, you can ask, what proportion of your funds are “proprietary?” A proprietary fund is one that the plan provider owns. Some large plan providers own most or all of the funds they offer. If you are considering working with a plan provider whose fund offerings are mainly proprietary, then a follow up question you can ask is: what are the fund fees associated with these funds, and how do they compare to industry averages? If the proprietary funds have higher than average fees, then they may not serve your staff’s best interests. None of the funds in Just Futures’ lineup are proprietary.

5. What plan design features do you offer?

The plan design choices you make can either alleviate racial and gender wealth gaps or widen them. So, Just Futures encourages you to set up your plan in a way that equitably distributes your organization’s retirement benefits budget among your staff. Common design feature options include:

Safe Harbor plan: This option lets you set up your plan in a way that allows you to automatically pass annual IRS non-descrimination and top-heavy tests, which are mandatory for ERISA retirement plans.
Guaranteed employer contribution: Also known as non-elective contributions or profit sharing, this kind of contribution allows the employer to contribute money into eligible employees’ retirement investing accounts, even if the employees do not contribute on their own. You can make this contribution as a one-off event or each pay period. And you can do it instead of or in combination with a matching contribution.
Roth and pre-tax (“traditional”) accounts: Most plan providers offer a pre-tax account, but not all providers offer a Roth option. While both pre-tax and Roth accounts come with tax advantages, some employees may benefit more from the tax advantages that are particular to investing through a Roth account.
Automatic enrollment (“opt-out”): Whereas the opt-in model used to be popular, research indicates that automatic enrollment leads to higher rates of staff participation in workplace retirement plans. Note: beginning January 1, 2025, the IRS requires new plans to have automatic enrollment.
Automatic savings rate increase (“escalation”): With this feature, you can set your employees’ contribution rate to automatically increase each year, unless they choose to turn off this setting. Note: beginning January 1, 2025, the IRS requires new plans to have automatic escalation if the automatic enrollment rate is less than 10%.

6. How easy is payroll administration?

You probably want to choose a provider whose processes allow you to offer your staff 401(k) or 403(b) benefits without too much hassle. To that end, consider hiring a provider that easily integrates with your payroll process or has a simple way for you to submit payroll reports. Specifically, you’ll usually save time if you choose a provider that automatically updates whenever:

Payroll runs and payroll data needs to go to the plan administrator
One of your staff changes the amount they want to contribute to their retirement account
A new staff member joins your payroll
A previously ineligible staff member becomes eligible for the plan

Other potential plan provider offerings that can simplify your job include:

Reviewing and approving hardship withdrawals
Reviewing and approving loans
Reviewing and approving Qualified Domestic Relations Orders (QDROs)
Completing your nondiscrimination and top-heavy compliance testing
Preparing and filing your Form 5500

7. What is the user experience like?

Just Futures recommends you choose a provider that offers an online platform which your staff can easily navigate on their computer or mobile device. User friendly features include being able to update contribution rate and beneficiary information without having to submit a form or mail a request.

8. How do you ensure data security?

Within plan administration, two standardized data security measures for recordkeeping are 1) the Department of Labor (DOL) recordkeeping (RK) guidelines and 2) a systems and organization controls (SOC) audit.

DOL RK guidelines: the Employee Benefits Security Administration (EBSA, part of DOL) provides guidance to plan sponsors, fiduciaries, service providers, and participants in employee benefit plans. The guidance helps safeguard plan data, personal information, and plan assets. To help ensure data security, you can choose a plan provider that meets or exceeds EBSA’s standards.
SOC audit: Plan administrators can hire an independent certified public accountant or audit firm to do a SOC audit. A SOC 2 audit is more comprehensive than a SOC 1. SOC 2 evaluates five trust criteria: security, availability, processing integrity, confidentiality, and privacy. After evaluating, an auditor can give an administrator one of the following opinions:

9. Is your firm currently facing litigation or administrative action, or have you previously?

Employers typically want to work with a provider that has a clean record, or at least no recent actions that call into question the provider’s status as a dependable fiduciary.

Hungry for more knowledge? Read on to learn how the plan choices you make can either alleviate racial and gender wealth gaps or widen them, and how you can choose the equitable options.

If you don’t have a retirement investing account, or if your employer contracts with a different retirement plan administrator, we’d love to show you the advantages we at Just Futures can offer! Contact us: info@justfutures.com.

~Lisa, Manager of Coalitions and Worker Power

This information is provided for illustrative purposes only, and is not intended to be taken as investment or tax advice. Consult a qualified tax and financial advisor to determine the appropriate investment strategy for you. These averages are based on 401(k) plans with 25 participants and $250,000 in assets, according to the 24th edition of the 401k Averages Book, with data updated through September 30, 2023, page 15.
This information is provided for illustrative purposes only, and is not intended to be taken as investment or tax advice. Consult a qualified tax and financial advisor to determine the appropriate investment strategy for you. The average total bundled cost for 401(k) plans with 25 participants and $250,000 in assets is 2.81% of assets, according to the 24th edition of the 401k Averages Book, with data updated through September 30, 2023, and is inclusive of investment management fees, fund expense ratios, recordkeeping & plan administration fees, and other asset-based fees. Just Futures’ age-based and risk-based models have blended expense ratios ranging from 0.20% to 0.24%, and our investment management fee for nonprofits is 0.30%. Combined asset-based fees can be as low as 0.50%. For a plan with 25 participants on Vestwell’s Plus pricing tier, a Plan Sponsor will pay $1,920 in base fees and $2,100 in per-participant fees. That makes up 1.6% of $250,000, making total costs as low as 2.1% of plan assets.
According to an Ariel-Schwab Black Investor Survey, “Since 2020, Black Americans who either have stopped investing or have never invested increasingly cite lack of trust in the stock market (36% [of Black Americans] vs. 29% [of white Americans]), lack of trust in financial institutions (25% vs. 19%), and having had a bad investing experience (15% vs. 9%) as the reason.” And, “Black investors are also more fearful of losing money than white investors – 56% cited it as a concern prior to investing compared to 46% of white investors.”
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Nothing contained herein is to be considered a solicitation, research material, an investment recommendation or advice of any kind.
The information contained herein may contain information that is subject to change without notice. Any investments or strategies referenced herein do not take into account the investment objectives, financial situation or particular needs of any specific person. Product suitability must be independently determined for each individual investor. Just Futures explicitly disclaims any responsibility for product suitability or suitability determinations related to individual investors.
Investing involves the risk of loss that clients should be prepared to bear. No investment process is free of risk; no strategy or risk management technique can guarantee returns or eliminate risk in any market environment. There is no guarantee that your investment will be profitable. Past performance is not a guide to future performance. The value of investments, as well any investment income, is not guaranteed and can fluctuate based on market conditions.