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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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Alternative to 401(k)

originally posted: 11/22/2006  reposted: 8/8/2011

Q: Can I offer a 401(k) plan to my employees without having to pay for running it myself?

A: It is allowable but not a good choice. Data shows that 401(k)s not supported by some employer financial contribution collapse within a few years. 

In the past some 401(k) plans were offered to employers for free but were actually redirecting the costs to the employees' individual accounts without their knowledge or understanding of the impact of these fees. This practice is no longer allowed. It seems unlikely that an employer could arrange all of the required services for free so that is why most firms purchase them as a bundled package for about $500 to $1000 per year.

A better solution for a no cost small business retirement plan is an IRA-based retirement savings plan that acts much like a 401(k) plan but has no operating costs. These are known as "SEP", "SARSEP" or "SIMPLE" retirement plans that are especially useful for small businesses. can offer more information on this topic and offers additional support for a $150/employee fee. The primary advantage is that there are no ongoing costs or administrative fees for the employer or the employees. The plan may be combined with a cafeteria benefit plan so employees can pick and choose the benefit options they value most.

A small business that does not want to support the ongoing cost of a 401(k) should use one of the available alternate small business retirement plans for better results.

More resources:

article: SIMPLE and SEP retirement plans (currently under revision and not available online)